How is Linus offering 4%?

Matthew Nemer

While we’re all grappling with the seriousness of the coronavirus pandemic, the Linus team brings some good news. We’re raising our interest rate to 4.0% starting April 1st. The recent market volatility presents new challenges, but we’re dedicated to providing the best investment experience and these events have validated the superiority of our model versus the competition. We wanted to take a moment and address our rates and how they are possible.

We’re raising our interest rate to 4.0% starting April 1st.

After the events of the past month, the state of DeFi is down, but not out. Most of the DeFi community is feeling the pain from the market volatility, liquidity crunch and subsequent existential threat to Dai that began on March 12th. While I still believe in the benefits and opportunities that DeFi offers, the race to full decentralization is one that needs to be taken slowly. Because we are building new capital markets, the road to anti-fragility is guaranteed to be expensive.

Linus is not DeFi (it’s OK, we’re self-aware 😉) but we are participants and stakeholders in the community. Matt Hamilton and I founded Linus because we saw an opportunity to help retail users — who have yet to overcome the learning curve associated with custodying and transacting crypto — access the wealth-generating opportunities available in digital asset marketplaces. We are passionate about the democratization of finance and enthusiastic for the opportunity to help the everyday investor benefit in a way that has never been possible. Linus was designed to bring the next $1 Billion into crypto, not to cater to the current crypto power user.

We determined that other stablecoins and smart contracts presented more risk than we were willing to assume on behalf of our users.

To date, our user base closely reflects our target market: Few have ever owned crypto, and even fewer have made an on-chain transaction or interacted with a crypto network. Trust is very important to the non-crypto retail user. We have a responsibility to shelter our users from excess risks and meet the return expectations we have set. These self-imposed guidelines, at times, can be in conflict. Since inception, this has translated to USDC deposits in Compound. While our competitors may have, at times, been able to provide better rates, we determined that other stablecoins and smart contracts presented more risk than we were willing to assume on behalf of our users.

With interest rates across DeFi lending below what can be achieved through FDIC insured institutions, we cannot claim that these deposits are the best risk-adjusted allocation of capital.

Although tempting, we made the decision to remain dedicated to providing the best user experience rather than compete on rate. As such, we designed Linus with the ability to remain agnostic as to protocol, smart contract or stablecoin. This flexibility allows us the ability to reallocate deposits during the inevitable event that DeFi lend risks increase or rates decrease. With interest rates across DeFi lending below what can be achieved through FDIC insured institutions, we cannot claim that these deposits are the best risk-adjusted allocation of capital.

Our experience in capital markets has taught us that every market, regardless of size, experiences moments turbulence and volatility. Unfortunately, the events of the last month have presented a short term crisis of confidence in DeFi lending protocols, but demand to borrow tokenized dollars is still extremely high. Linus was designed with the flexibility to protect users’ deposits from moments of uncertainty. Given the recent events, we are choosing to temporarily reduce exposure to DeFi lending rates.

Access to alternative and exotic assets is relatively new for the everyday investor. At Linus, we’re here to make that as easy — and safe — as possible. Without the ability to quantify and communicate the risks associated with DeFi deposits, we are obligated to either provide the most efficient risk-adjusted return or suggest depositors seek other investment opportunities. We are choosing to continue to act in the best interest of our depositors while still operating within digital asset credit markets. Our dedication is what makes Linus superior to the alternative.

Looking forward, we couldn’t be more excited about the future of DeFi.

Looking forward, we couldn’t be more excited about the future of DeFi. Our actions in the short term do not reflect our expectations of the long term. We are extremely excited about new projects and developments on the horizon and are continuing to engage in discussions with potential DeFi partners. The same vulnerabilities that we are compelled to protect our users against will lead to more robust systems and promote further financial experimentation.

I want to encourage everyone in DeFi, even our direct competitors, to continue to participate in this experiment and remain optimistic about the future. We’re committed to do our part by testing a different path and building the model that keeps the best interests of the everyday investor in mind.

Matthew Nemer
CEO, Linus

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