ShapeShift’s CEO and Founder, Eric Voorhees, recently raised alarm bells about the remarkably high compound interest rates for stablecoins like Tether (USDT) and USD Coin (USDC) in the decentralized finance (DeFi) industry. These concerns emerged against the backdrop of ShapeShift’s regulatory settlement with the U.S. Securities and Exchange Commission (SEC), which involved a penalty for the company.
Scrutinizing DeFi’s Lucrative Interest Rates
Voorhees emphasized the double-digit interest rates, citing compound yields of 20 to 30 percent on platforms such as Compound. He expressed skepticism over the mechanisms that support these yields and the feasibility of maintaining them without luring significant institutional funds away from traditional banks and into stablecoins.
Questioning the viability of such enticing interest rates, Voorhees took to Twitter to label the practice as one of the best risk-adjusted transactions currently available, while also acknowledging his limited understanding of certain aspects. He openly sought insights from the crypto community on whether he was overlooking key elements of these high yields.
In response to his inquiries, another crypto market participant pointed to the possibility of these rates being temporary, attributing them to leveraged trading strategies. The conversation also noted Binance’s recent prominence in farming pools, a suggestion that Voorhees found to be a plausible explanation, albeit he remained astonished by the rate levels.
Legal Challenges and Structural Changes for ShapeShift
ShapeShift has recently come to terms with the SEC, settling charges of operating as an unregistered exchange. The company consented to pay $275,000 and to cease certain operations. This news significantly affected the price of ShapeShift’s associated altcoin, FOX, which saw a sharp decline following the announcement.
Reacting to the SEC’s actions, ShapeShift announced a strategic shift away from facilitating direct crypto exchanges and stated it would no longer act as a counterparty to customer exchanges. By mid-2021, the company had begun dissolving its corporate governance in favor of a dedication to immutable and unregulated DeFi protocols.