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Weekend reading: Zopa is done with the peer-to-peer business

Weekend reading logo

What caught my eye this week.

The granddaddy of peer-to-peer (P2P) lending, Zopa, has thrown in the towel on P2P altogether.

According to the company:

…over the last few years, customer trust in P2P investing has been damaged by a small number of businesses whose approach led to material losses for retail investors.

Linked to this, the changing regulation which followed raised the operational costs of running a P2P business, as well as the cost of attracting new investors to the Zopa platform.

To offset these increased costs and ensure we have a sustainable and profitable business, we’d need to reduce investor returns to a point where they’d no longer be attractive and commensurate with the risk that investors take on.

For these reasons, we have decided to fully focus our attention on our Bank.

I think the writing has been on the wall ever since Zopa became a bank in 2020.

If you’re trying to overthrow the established order, you don’t typically pursue all the conventional trappings to make progress.

Zopa had a good run. The bank says that over 16 years – and despite two financial crisis – the average return to its borrowers was 5%. Even through the pandemic it delivered an average of 3.9%.

Given the failures elsewhere in the sector, that’s not to be sniffed at.

I did it my way

Monevator and peer-to-peer lending both arrived around the same time. I was an early adopter on Zopa and so I wrote about things I noticed, such as on a surprising pattern of a particular cohort of my loans going bad.

The zoperati smirked at my concerns on their forum. They said I didn’t understand probability.

But it turned out Zopa did see defaults spike at a higher-than-expected rate in late 2008. My hunch was right.

Zopa subsequently tweaked its processes and that rise in bad loans proved to be a blip. Overall the platform did well in the recession.

I bring up this ancient history because it framed how I viewed P2P.  You really could have visibility into how your money was lent with P2P – and the risks and rewards – in a way that was novel for nearly all of us.

But arguably, what the P2P experiment proved is most of us aren’t very good at judging such metrics – even at the level of choosing a viable platform. Many people just chased the highest yields.


Originally, peer-to-peer was all about Bob lending directly to Joe.

Bob would read a bio of Joe, look at his photo, and think: “Yeah, Joe looks like a trustworthy sort who needs a new motorbike.”

You’d already have set your interest rate. That would attract a certain cohort of risky/rewarding borrowers, which Joe might fit into.

Even if Joe seemed a bit riskier than you’d prefer, you might still see a tiny sliver of your cash spliced into a loan to Joe – with your money earning a slightly higher rate than other money in that loan – at the cost of your lending going out more slowly.

There were lots of quirks like that, and Zopa hobbyists poured over them.

Many of these early and vocal Zopa investors were more mathematically adept than me. I felt though that some lacked a survival instinct. They understood odds, but perhaps not existential risk.

A few of them had all their investment money with Zopa. I thought that was crazy. I still do, even though history has okayed their decision.

As I’ve said many times, my suggested P2P limits were far more cautious. Perhaps 1-3% of net worth across all one’s chosen P2P platforms. Maybe 5% if you’re keen, rich, or stuck for options.

Widely diversified across each platform, too, of course.

Bang goes the business model

Prudence was wise, because far from gracefully transforming into a bank (not a sentence you’ll read every day) the worst P2P lenders went kaput.

A couple went into administration. Others were consolidated. A few were part of larger businesses that put their underwhelming P2P units into run-off.

Most of these P2P experiments in the UK never achieved any scale. The vast majority you’ll never have heard of.

But there were a couple of high-profile casualties.

The failure of property loan financier Lendy highlighted risks that went beyond borrowers simply not paying you back. Lendy investors found out in late 2019 that their money had not been properly ring-fenced. Thus it could have been used to pay the firm’s creditors.

Elsewhere P2P lender and pawnbroker Collateral was closed down in 2018 when its regulatory status was thrown into doubt. Hard to plan for that.

The Financial Conduct Authority (FCA) tightened up P2P regulations. This (rightly) led to delays in granting Innovative Finance ISA status. But it also exposed another risk. Even a seemingly viable platform could suffer from adverse regulation. This could put a business model in jeopardy at a stroke.

First among less than equals

For all these reasons I graced only two of the biggest platforms, Zopa and Ratesetter, with my money. They were also the only ones I featured on Monevator.

Both seemed to me to have had sufficient scale and profile to be a problem for the authorities if they failed – and thus I hoped got more scrutiny – as well as being more transparent themselves.

Many P2P fans would count a third member of the ‘Big Three’ triumvirate, Funding Circle, as among the safe options. But I was less convinced its business loans were amenable to P2P evaluation, at least in the early days.

True, Funding Circle is stock market listed. That affords extra reassurance, because analysts and fund managers should also be kicking the tyres.

But like all these firms, Funding Circle’s offering changed over time anyway and I didn’t fell like I was missing out.

Eventually there seemed to me no great difference between what it and the other big two platforms offered from a consumer’s perspective – fixed rates, basically – but rates everywhere had plunged, and P2P returns no longer seemed very juicy.

Tails you lose

Perhaps I was too timid. There are other widely-admired P2P sites out there – Assetz Capital and Lending Works for starters – and I am not saying that there’s anything intrinsically wrong with the best of them.

But I also stuck with the big two for practical reasons. At one point it felt like I was being emailed by a new P2P outfit every week. Evaluating them all would have been a full-time job (there are people who do just that). Even as a blog owner let alone as a saver, I didn’t have the spare capacity.

What really concerned me was systemic risk. This might be something off in a platform’s business proposition or with its models, or it could even be fraud. In the worst outcome, you wouldn’t just see 8% of your loans going bad when you’d anticipated that 5% might default. With systemic risk you could potentially lose much more. Maybe everything.

Losing all your money is very unlikely with a High Street bank – even before you consider FSCS protection – or with big stockbrokers. Size, regulation, and reputation aren’t 100% guarantees. But they do help.

In contrast, most of the new P2P firms were loss-making shoestring start-ups. Some were backed by crowdfunding retail investors. One wondered how much experience of actual banking some of the bright founders had beyond using an ATM to withdraw cash on a Friday night.

Risks clearly abounded.

Banking on it

That was (mostly) then. This is now.

With Zopa throwing in the towel on P2P, the original vision of P2P is dead, at least among the big platforms.

Zopa is a bank. Ratesetter was acquired by Metro and has become a loans business. Funding Circle is shut to retail investors for the time being at least.

I suspect this retrenchment has happened because of a combination of risk aversion, market mismatches, regulation, the pandemic – and even success.

The ability of Zopa and Ratesetter for instance to deliver higher returns than cash in a bank without blowing up attracted more money to those platforms. This in itself had a depressive effect on returns. Yet the platforms had to pursue ever-greater scale for their own economic reasons. Regulation costs mounted, and the increasing vogue for insulating investors from the risk of losing any money further curbed returns.

Somewhere the P2P element went by the wayside. In the end you’d save via an aggregated marketplace in almost the same way as you’d put money into a savings account. You expected higher returns but got no FSCS protection. Ultimately you relied on the platform’s safeguards to protect you from loss.

They’d reinvented banking!

Better to be a real bank in that case, I suppose.

Are any readers using the smaller P2P lenders or mourning the loss of the big ones? Let us know in the comments below.

And have a great weekend everyone.

From Monevator

Our updated guide to finding you the best broker – Monevator

From the archive-ator: How to run your portfolio like a hedge fund – Monevator


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Survey finds a quarter of Gen Z already want to quit the workforce – Insider

‘Payment for order flow’ not so bad, analysis finds – Axios

“The UK economy has become less globalised, with effects from the pandemic exacerbated by Brexit” – Michael Saunders, MPC/BOE

UK property news mini-special

Home prices rising at fastest rate for 15 year, says Halifax… – BBC

…with ‘race for space’ fading as flat prices gain ahead of houses… – Guardian

Bristol named as top city for buy-to-let investors – ThisIsMoney

UK urged to tax $3 trillion worth of residential property for capital gains – Guardian

Landlords could sell up ahead of stricter EPC requirements – ThisIsMoney

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Vanguard unveils ‘strict’ active sustainable fund range – Investment Week

Covid PCR test market ‘a rip-off jungle’ says ex-competition regulator – Guardian

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Options for retiring with an ongoing mortgage – ThisIsMoney

Why this [US] freedom weighted ETF excludes China – Institutional Investor

We can both get £50 credit at Seedrs if you sign-up via my link – Seedrs

Modern homes for sale, in pictures – Guardian

Comment and opinion

Low real returns from US equities for the next three decades – Morningstar

Look how far we’ve come – Indeedably

Ten years with a one-fund portfolio – Oblivious Investor

You probably need to rebalance – Morningstar

The many worlds of enough – More To That

Transitioning into the FIRE life: an update – Retirement Investing Today

A simple framework for getting rich – Banker on FIRE

What about an anti-investment policy statement? – Abnormal Returns

Optionality is an asset – Roger Nusbaum

Everyone’s an expert – Humble Dollar

Turbulence ahead – Simple Living in Somerset

Discretion about what’s in an index can ding returns – Klement on Investing

The worst money advice ever – A Teachable Moment

In defence of direct indexing [US but relevant…someday]Advisor Perspectives

Crypt o’ crypto

Focus on risk when investing in crypto – A Wealth of Common Sense

Long interview with a top digital asset VC – Intelligencer

Bitcoin ‘founder’ wins right to keep billions of dollars worth of BTC – BBC

Naughty corner: Active antics

Legendary Peter Lynch still backs active management – Markets Insider

The Casper mattress company: an autopsy – Below the Line

Nintendo comes to a fork in the road – Intrinsic Investing

Can commercial property help you hedge inflation? [Search result]FT

A chat with Drew Dickson of Albert Bridge Capital [Podcast]CFA Institute

Probing pre-1926 US stock returns [Research]SSRN

Investing mindset mini-special

The volatility is the point – The Reformed Broker

This bull market hasn’t always been easy – A Wealth of Common Sense

Take care of your business – All Star Charts

Covid comeback

Three vaccine doses key for tackling Omicron – BBC

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The life and death of a fitness fanatic who refused the vaccine – Guardian

The coronavirus can infect and possibly hide in fat cells – Gizmodo

What’s the truth about lockdown-busting parties at No 10? – Marina Hyde

Kindle book bargains

Flash Crash: A Trading Savant, a Global Manhunt and the Most Mysterious Market Crash in History by Liam Vaughan – £0.99 on Kindle

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How to beat the winter dread – Guardian

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The builders of Second Life on the metaverse [Podcast]Invest Like The Best

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{ 45 comments… add one }
  • 1 Jonathan Blum December 11, 2021, 12:00 am

    Any thoughts on the crypto based lending / borrowing platforms like Nexo and Blockfi? Their rates seem too good to be true. I wonder if it’s a business model that will last or if it will end the same way as p2p.

  • 2 ermine December 11, 2021, 12:29 am

    Many moons ago (well, 8 years ago) I took a look at what people were using their Zopa loans for.

    Cars, weddings, holidays, cars, home improvements, cars, weddings, consolidate debts, cars

    The writing was on the wall already then. It was horrific. These are all things you should save for. It was never going to end well.

  • 3 Gentleman's Family Finances December 11, 2021, 12:38 am

    Great article.

    I’ve dabbled in ZOPA and P2P.
    Returns from ZOPA were not great, maybe 5% IRR, better returns elsewhere and worse in others.
    No money lost (overall) bit pitiful low returns and much higher bad debts, lates and defaults and a long drag out on getting your money back.
    Overall returns are about 8% after tax on all P2P.
    I’d have been better to never get involved both from a financial point of view and mental energy.

  • 4 The Investor December 11, 2021, 12:47 am

    @all — I’ve felt it necessary to delete a couple of comments that implied certain specific platforms are operating fraudulently. I don’t judge the statement was correct as I understood it, but more importantly fraud has a very particular meaning that I don’t fancy testing in court.

    I do believe we can talk in general terms about the terms, conditions, risks, rewards, and outcomes we’ve enjoyed – or not – with P2P lending, without going down that avenue.

    This may strike some as overly cautious, but unfortunately it doesn’t strike me that way, and I’m not a disinterested or uninformed party.

    Apologies for any inconvenience caused.

  • 5 Thefijourney December 11, 2021, 12:56 am

    Hey TI, thanks for this post. I used ratesetter after your recommendation and probably recommended it myself to at least 5 others, all of which put some money in it. I got the joining bonus like many and then just left a few thousand in there. I was very surprised when it closed that side of the business.


  • 6 The Investor December 11, 2021, 12:59 am

    @TFJ — Indeed, me too. I think P2P was hit hard by Covid, especially in those early uncertain days. Was very pleased to see the orderly return of money to investors though. 🙂

  • 7 ZXSpectrum48k December 11, 2021, 1:15 am

    I started doing some P2P when Zopa began in 2005 but quickly lost interest in it. The rates simply weren’t high enough.

    I came back to P2P in 2013 as it expanded rapidly into different lending areas. What interested me was two developments: fees for underwriting loans and the ability to buy and sell loans. The platforms were taking staggering margins: borrowers 30% on property bridge loans but lenders only getting 8-12%. Platforms were happy to pay 1-2% to underwriters like me to hold the loan for a week or two and then sell it on to retail lenders. Rotating your capital one to two times a month, collecting those fees made a solid 20%+ per annum, with basically no risk. Retail lenders would buy any old toxic waste if it was “property backed”.

    On some platforms it was risk free to hold the loans, as long as you could sell them prior to redemption. The lender would lender £1,000. The platform would give the borrower £700 since the borrower had to pay all interest and fees upfront (say 30%). The platform would then pay 1% interest per month to the lenders. The lenders were just being paid back their own money. As a result the loan would never default prior to redemption. Retail lenders were so eager to buy loans at 12% yield, that I could buy a 12 month loan, strip the first 11 coupons off totally risk free, and then sell it back to someone else with just one month left at par (or sometime above par!). They took 100% of the principal risk for a measly 1% coupon. No understanding of default probabilties or recovery rates.

    It was bonkers but you couldn’t explain to people. I wrote about 1,000 posts on the P2P indie forum many explaining how it was the lenders taking the big risk and the borrowers were actually getting an amazing deal by only paying 30% in interest but nobody listened. They really thought that if the loan was 70% LTV, they couldn’t lose money. They never did the math. I got out in 2016 when the writing was on the wall but many just kept buying until the Ponzi scheme collapsed from 2017 onwards.

  • 8 Tim P December 11, 2021, 7:50 am

    Hi, all. Slightly off topic, but with Christmas around the corner, just wondered if there were any recommended reading for investing Xmas gift ideas. Tim Hale’s Smarter Investing and Lars Kroijer’s Investing Demystified were gifts last year. Would anyone recommend anything else?
    Thanks, Tim

  • 9 xeny December 11, 2021, 8:10 am

    >From the archive-ator: How to run your portfolio like a hedge fund –

    entry seems lacking a link?

  • 10 Steven John Tait December 11, 2021, 9:14 am

    That Casper article is great. I need to up my game when evaluating individual companies. Good find.

  • 11 slg December 11, 2021, 9:50 am

    Really interesting reflective article on P2P. I particularly liked the links to your earlier viewpoints and comparisons across the whole P2P journey.

    Personally fwiw, I am not an early adopter for financial investment and the concept of P2P always seemed too risky for me to spend my energy drilling into the detail further.

    Thankfully I have got to experience your journey (without the risk or reward). Excellent writing!

  • 12 Tim P December 11, 2021, 10:01 am

    On a side note, could anyone recommend any investing books, besides Tim Hale’s Smarter Investing and Lars Kroijer’s Investing Demystified? These were excellent gifts for me last year. Many thanks, Tim

  • 13 Marco December 11, 2021, 10:01 am

    I’ve had a terrible experience with P2P and crowdfunding. At one point I was making 3k a month in interest and was naively thinking I could retire with just 300k in P2P!

    Anyway, painful lessons learned since then and fortunately I have had good timing with lump sums into VWRL with monies I did get back.

    The only positive point is I think I am much less likely to get financially duped when I am older.

  • 14 Griff December 11, 2021, 10:17 am

    Has anybody had any success with crowdcube.
    I’ve put a few hundred quid in with some of their companies just for a bit of a gamble.

  • 15 datoon December 11, 2021, 10:19 am

    I have used FundingCircle since it started. The initial offering was amazing and too good an opportunity to miss out IMHO when rates were so low. There are some social reasons too, helping other businesses to get started.

    I only put a relatively low amount in 1% of my assets at the time. The rates where good at 8%+, later I transferred my capital to an ISA with them the rates where still relatively good.

    However, over time they have dropped to 4%. I think this is too low for the risk incurred. I kept the capital in and let it reinvest but decided I’d not put any money in. My thoughts were that I’d achieve better returns in the market.

    When COVID hit FundingCircle stopped lending so I’ve been taking the money every month and probably won’t reinvest in the future.

  • 16 The Investor December 11, 2021, 10:27 am

    @Tim P — Oh, I didn’t do a book list this year because I wondered if there was an appetite. Will do a last minute one for next Friday’s Weekend Reading.

    For now my best all-around recommendation for an investing/money book for gift giving would be Morgan Housel’s The Psychology of Money.

    Here’s the link to its Amazon page: https://amzn.to/3lV1uMI


  • 17 The Investor December 11, 2021, 10:29 am

    @Xeny — Ah, well I was making an urbane joke about private investor aspirations and the folly of pursuing active management.

    (Okay, it was a slip-up. 😉 Thanks for flagging, link added!)

  • 18 BillD December 11, 2021, 10:37 am

    This is odd. At 9:30am I’m reading comments with timestamps for around 10:30am. I got a whole hour back! Thanks for the links.

  • 19 datoon December 11, 2021, 10:46 am

    @griff I’ve money in both seedrs and crowdcube but very small amounts. I have hand picked my investments. 1 is up 40% although that doesn’t mean anything as it’s what other people in the platform are willing to pay for it.

    I see those platforms as high risk.

    Usually, the businesses are repetitive crowd funders too so any original investment becomes devalued as they release more shares. So it comes with the caveat for me, believing in the business and understanding you might have to reinvest in the future.

  • 20 datoon December 11, 2021, 10:49 am

    @griff also be conscious that it’s advertising for them, I recently saw a company with 95% funding in 10mins of going live, but that was from one of there major investors.

  • 21 NewInvestor December 11, 2021, 10:56 am

    Is that the right link for “Survey finds a quarter of Gen Z already want to quit the workforce”?

  • 22 The Investor December 11, 2021, 11:02 am

    @NewInvestor — Oh dear, thanks. Fixed now. (It’s pretty clear who finished off Weekend Reading under the after-influence of the excitement to get a booster shot yesterday, eh? 😉 )

  • 23 The Investor December 11, 2021, 11:19 am

    @all — Continuing the less-then-ideal link theme, I’ve also removed the link to a Zopa blog post about how it “tweaked” its algo/processes after the bad loan blip, as that was now coming up broken. I guess Zopa is removing the old blog posts given the new direction?

    (I actually wrote most of the article above at the start of this year when I realized the big guys were all retreating from P2P but didn’t get a chance to finish and it’s been stuck in drafts, so was able to repurpose and update it here. Hence that older link. 🙂 )

  • 24 Gizzard December 11, 2021, 11:40 am

    I have had what I consider a positive experience with P2P lending. I have used it instead of bonds in my portfolio. I’d probably have been better off with bonds but they have always seemed too expensive to me. Admittedly, Ratesetter and Zopa have now exited P2P and some platforms are no longer lending money, but I’ve never lost any capital and the interest (up to now) has been well ahead of inflation.

  • 25 Andrew Preston December 11, 2021, 12:02 pm

    For 5 or 6 years I had an account with Ratesetter, and earned some decent interest from my loans, between 3 and 4 %, as I recall. My first doubts crept in when it transpired that the owners/managers had made some very large loans, to one or more somewhat iffy car finance business(es), I think they were.
    I scaled back, and gradually exited. I was gone before the point where lenders were experiencing ages to get their money back.

    I enjoyed it while it lasted.

  • 26 Tom A December 11, 2021, 12:41 pm

    Set up a IFISA with crowdproperty and have had no complaints so far. Hopefully not who @ZXSpectrum48k was referring to. I only dipped a toe in so a very small part of my investments.
    I’ve also dipped an even smaller toe into BlockFi and Crypto . Com with payments of interest showing on the account. I haven’t attempted to withdraw anything from them yet. I’m not a massive crypto believer but it’s a punt.

  • 27 jim December 11, 2021, 1:14 pm

    Just when I thought New Zealand couldn’t get any worse. Interesting little link there. Honestly smoking has never interested me but what’s with all the health zealots and mandates these days. For god sake let people live and make their own choices.

  • 28 Prometheus December 11, 2021, 2:31 pm

    I was lending in zopa at the beginning, when rates were appropriate for the risk. When everyone and their dog piled in the rates crashed and were ridiculously low for the risk.

    Last transaction I did was use them for a bridging loan as that was wat amazingly low rates with no penalties for early repayment! They soon took that away and the writing was on the wall….

  • 29 CalmFrog December 11, 2021, 3:12 pm

    P2P proponent here. I’ve moved most of my ISA portfolio into P2P loans over the last 3 years and done well out of it, Covid crash included. I’ve focussed entirely on the property based lenders. Started out across 10+ platforms and have whittled that down to a top 5:

    CrowdProperty, Relendex, Kuflink, Proplend, SoMo (with AssetzCapital next, so that’s 6 😉

    I invest actively-ish, reviewing individual project/loan offerings and skipping any that I don’t ‘get’, optimising for returns and diversification. Default rate has been <0.1% which I credit to the platforms diligence and recovery teams. Overall APY over the last 3 years is 7.2%, including the defaulted loan parts.

  • 30 C December 11, 2021, 3:46 pm

    Managed to panic early when it came to Ratesetter and got out by Feb 20. I think they eventually did well by their customers, but no doubt there were a few sweaty palms in the spring of 2020.

    Another sizeable loan with Abundance seems to be in purgatory and I’ve pretty much written that one off. If it ever comes good, it’ll be a bonus.

    In retrospect, I took too many risks and wasted a lot of time. But thankfully I’ve come out a bit ahead – with plenty of lessons learned along the way.

  • 31 far_wide December 11, 2021, 4:26 pm

    I went into P2P in a fairly big way. About 25% of my net wealth at one point. I did very well overall, though still have some money trapped in Collateral. I do miss the days of the Funding Circle secondary market, buying and selling was great fun.

    I’m finding it fascinating to see history rhyming/repeating with Crypto now. I am very regularly seeing people suggesting that I put my money in ‘very low risk’ (10% p.a) yielding coins. There are plenty of platforms offering much higher ‘safe’ yields too.

    As you highlighted, in P2P the platforms that got into the most trouble (Lendy, Collateral, and I’d add FundingSecure) were the ones offering similar yields.

    In comparison though, P2P was/is a (poorly) regulated space, dealing only with Government-sponsored fiat currencies, making some sometimes questionable lending decisions to mostly very real parties against assets (mostly property).
    Meanwhile, Crypto has zero regulation, the deposits/loans are often funded in tokens that themselves are highly volatile, and the lending being done is somewhat more than questionable and often entirely obscured. To quote one recent blurb from BlockFI:
    “BlockFi is capitalizing on highly profitable basis trades on bitcoin futures that hedge funds are running and are willing to lever up on to amplify their returns”. So, trading bitcoin futures to generate returns? And this is of course just in theory. Without regulation, who even really knows what they’re doing. Not that I’m suggesting any malfeasance from BlockFI, I’ve no idea.

    But to step up a level, there is exactly the same obfuscation going on in terms of using technology to try and pretend that high yields can be earned for nothing. What people want to believe is that high safe returns exist just because CRYPTO. But they don’t, just as they didn’t exist because P2P/Fintech. Crypto is another order of magnitude though. In my view, the risks in Crypto staking make P2P look like NS&I Premium bonds.

  • 32 The Investor December 11, 2021, 5:05 pm

    Re: Crypto lending etc.

    As I understand it, what most (/all?) yield products in the crypto space are taking advantage of is the fact that Bitcoin (and other crypto coins?) tend to spend a lot of time in contango.

    Contango is a technical term for the state where traders expect future prices to be higher than current prices.

    I am nothing like a commodity expert even by the Internet definition of the term ‘expert’, but as I understand it most commodities tend not to stay in contango for long, because of costs of storage, some commodities rotting, and general supply/demand characteristics.

    For various reasons, Bitcoin may be different, at least for now. We’re really just discovering how these things work, after all.

    Now if you think a commodity is going to be worth a lot more in the future than today than why not buy a lot of it today, right?

    Well with some commodities that’s not very feasible (e.g. bananas if you see higher prices in five years) and also there’s always the chance you could be wrong.

    BUT being a canny hedge fund though you could sell the forward price of the commodity – say Bitcoin – and simultaneously buy at the current/spot price. In theory, this becomes a risk-less trade; you just pocket the difference as the spot price converges with the future price.

    Of course you need money to do this. And banks aren’t yet on-board with ‘risk-less’ and ‘crypto’ being in the same sentence, so hedge funds need an alternative source of funding to do this arbitrage trade.

    And that is where crypto lending/staking products come in. Intermediaries get a load of money from the little guy (us on staking platforms) and loan it to the hedge funds. The funds still make massive profits despite paying 5-20% interest because, well, crypto. You could argue the little guy gets to take a small bite of the arbitrage trade, via the vector of the staking returns.

    Sounds straightforward but it’s probably pretty risky, with opaque risks. Indeed my basic outline as discussed above comes in part from reading people who believe the entire crypto staking market will inevitably blow up sooner or later.

    (Most likely if/when prices crash I guess, and liquidity drains from the system. But also if you believe crypto is all nonsense or a Ponzi scheme or whatnot, then that being revealed as demonstrably true and widely-understood would presumably also quickly do the same thing, maybe via the first mechanism anyway.)

    Because I’m a bucaneerring sort I have a small amount of Bitcoin (additional and separate to my core HODLing) on a staking platform; I tend to move it on and off staking depending on whether the market feels bullish, as a probably futile effort at risk mitigation ahead of the ‘big one’.

    Note that many crypto people make all the above sound much more complicated, and they may be right. This sort of thing gets technical fast.

    Also beware that I’m 100% confident that most of the big fish putting on the trade have thought about the exits more than 99% of the everyday folk like us who think we’ve discovered a magic money machine. 🙂

    So I would definitely proceed with extreme caution, and the above is not advice to get involved!

    If you want a taste of the more complicated version of how it works, this woman seems to know her onions:


    Again, not advice or guidance or maybe even right, just for info.

  • 33 Andrew December 11, 2021, 5:59 pm

    @Jonathon Blum

    Saw this on Hacker News a few days ago, which paints a very dark picture of the entire crypto P2P lending scene:


  • 34 far_wide December 11, 2021, 6:14 pm

    Thanks, TI. That does actually shed some light to me as to at least in theory how there could be a value proposition there. I’ll have a proper read of that Twitter thread. Btw, maybe just autocorrect but I assume you mean contango.
    Anyway, as you suggest, even if there is theoretical value then that could be very easily swamped by opaque risk. I’ve been reading about some of the concerns with Celsius for example (e.g. https://rorodi.substack.com/p/the-biggest-crypto-lending-company ). I mean, wow, this is not for the faint of heart is it.
    Ref: the big one, the concern I’d have with playing that game is that it may be entirely unrelated to how bullish the crypto market is. If there is as much potential for price manipulation as has been suggested, the end could come out of the blue on a big upswing. Or an impending regulation could cause one of those firms swimming naked to rugpull their operation out of the blue.
    I do wish I wasn’t quite so bearish about the whole scene. In P2P I could at least see at heart the value proposition there. There is value in crypto, but as I see it it’s mostly about not being the mug who ends up without a chair when the music stops. To be fair, I made some decent money on P2P on this principle too.
    I could give it a whirl, but at root throwing a couple of £k there would probably just not be worth it, and I think I’ve been reading too much of the anti-kool aid to ever be able to sleep comfortably with meaningful amounts there.

  • 35 The Investor December 11, 2021, 6:20 pm

    @far_wide — Thanks. I have a blind spot with the word “contango” despite being neck deep reading about the oil market 6-12 hours a day for weeks a few years ago.

    Another one is algorithm. I can literally *never* spell it properly. Again, I was in/around technology for about 20 years (albeit keeping about as far away from writing an algorithm as I could haha).

    The brain is weird.

  • 36 far_wide December 11, 2021, 6:24 pm

    Crossed with @andrew.

    Yes, these revelations are quite something. This is the biggest crypto lender, and they have a CFO arrested on money laundering, fraud and tax evasion charges (unrelated to Celsius, but still) and let’s say a potentially highly inappropriate person in charge of institutional lending, by the sounds of it.

    Unless you’re playing with house money from your huage crypto/stonk gains, I don’t see how to stomach this sort of mood music for 8% a year. I think I’d rather punt a few hundred quid on GoldenRetrieverCoin and take my chances (does that exist? Might give it a go)

  • 37 Imran December 11, 2021, 7:11 pm

    I’ve spent several years professionally studying peer-to-peer platforms globally, virtually everyone who had a sound lending practice shifted from peer-to-peer to institutional lending.

    For proven risk models institutional sources of capital were willing to accept lower rates of returns than individuals and the overhead cost of managing a handful of institutions is a fraction of what managing thousands of retail investors costs (not to mention far less regulatory requirements). So it’s a no-brainer for p2p platforms to switch to institutional capital, both cutting their own costs but also delivering a lower cost of capital to borrowers which in turn enables them to attract more borrowers.

  • 38 ZXSpectrum48k December 11, 2021, 8:57 pm

    @far_wide. Bitcoin (XBT) is just a currency so Covered interest rate parity works. Take 1 bitcoin and invest it for 1 year at some deposit rate we will call r(xbt). At the end of the year you have 1+r(xbt).

    Equally take 1 Bitcoin, convert to dollars at some spot exchange rate XBTUSD(s) and then invest that for 1 year at some risk free rate r(usd). At the end of the year convert it back to bitcoin at forward exchange rate XBTUSD(f). The amount you have at the end of the period is XBTUSD(s).[1+r(usd)]/XBTUSD(f).

    Both of those amounts should be the same in the absence of arbitrage, so
    r(xbt) = [1+r(usd)] XBTUSD(s)/XBTUSD(f) -1

    Now r(xbt) isn’t some actual deposit rate. It’s what is termed the implied FX yield. The implied XBT yield is just a function of the ratio of spot and forward exchange rates and the riskfree rate in USD. It’s a synthetic deposit rate, same as you get if you look at GBPUSD(spot) and GBPUSD(fwd) exchange rates or any other currency. Nothing usual at all except that it’s cryptocrap rather than Sterling, Euros, Turkish lira or Gold.

  • 39 Passive Investor December 11, 2021, 10:16 pm

    I’ve been on a similar trajectory with P2P. Started with Zopa and dabbled in a few others over the years. With pandemic loss of liquidity and no protection began to see the benefits of a bank. Finally got my money out over the last few years except still have money locked into House Crowd which is in administration incurring massive professional fees. Overall I probably broke even with lots of hassle along the way. Have filed P2P in the ‘great idea in theory that didn’t work out’ part of my memory,

  • 40 Andrew December 12, 2021, 11:32 am

    I have <£1K in Zopa that has been trickling out for over a year, so I'm just glad this will be returned in full at the end of January.

    There are still 1 or 2 P2P platforms that I feel are worthwhile. I was very impressed with how Assetz Capital manager themselves during the pandemic. They shut withdrawals but later very quickly and rightly returned a lot of capital because they couldn't pay the yield (lack of loans).

    On the crypto lending discussion, since most of these platforms offer yields on stable coins, I encourage everyone to read Matt Levine's article on stable coins and how they can relate to lending.


    It discusses how stable coins can be seen as senior claims on cryptocurrency, and how they can be stable while the underlying crypto maintains a threshold value. Meanwhile junior claims are made via levered cryptocurrency. People can put down small amounts of crypto on platforms like Nexo and lever up e.g. 30x to get huge gains on the upswings.

  • 41 MrOptimistic December 12, 2021, 12:45 pm

    Book recommendations ? Anything by J K Galbraith. A Short History of Financial Euohoria or Money. Made me laugh out loud.

  • 42 Dave Saunders December 12, 2021, 1:09 pm

    P2P is on the same tab of my spreadsheet as commodities, crypto, premium bonds, single stocks, crowd funding, &c. It’s the bit that gets updated most frequently and even if the whole lot were all to go to zero I’d be annoyed but it wouldn’t have a significant impact on my overall situation.

  • 43 Weenie December 12, 2021, 11:59 pm

    At one point, I had a little P2P portfolio, with investments in Lending Works, Ratesetter, Funding Circle, Landbay and Funding Knight. The latter went under and several Funding Circle loans defaulted, but despite that, I think I still made an overall average of 6%. I stopped reinvesting in P2P a couple of years ago and have pretty much got all my cash out now.

    Can’t say the same for the investment I made in Property Moose, which went under and I’m waiting for properties to be sold to see if I can get my cash back – will be happy if I break even there.

    The only Crowdcube investment I have is Freetrade (invested in round 3) and I also invested in BrewDog, which also had crowdfunding rounds.

  • 44 Mr Jim McGregor December 17, 2021, 10:00 am

    I’ve just received most of my money back from Zopa, which earned my 5% over the time I had it invested. I liked the idea of P2P and thought it would challenge the financial markets in the way that Betfair Exchange transformed online gambling, giving punters both choice and an alternate way of doing things. I’d hoped that millions like me would follow suit – I only invested £1,000 – but I felt that was the point. If millions of small investors did likewise it could bring about positive change. I’m slightly disappointed that it wasn’t to be.

  • 45 Webby December 17, 2021, 2:22 pm

    Interesting article and comments.

    I’m invested in UK P2P in a major way and do it on a part-time basis, spending several hours on it every week. I spend a fair amount of time on due diligence on loans etc.

    I loan across several P2P platforms to borrowers with solid, readily-sellable assets backing them e.g. residential property in the UK and LTVs below 75%.

    For me, Peer 2 Peer lending has worked out very well indeed. The XIRR return I’ve received this year averages 8.52% p.a. Last year it was even higher.

    That to me is a very handsome yield for merely sitting infront of my computer in the comfort of my own home.

    I’m going to continue having P2P lending as a very significant part of my investing strategy. As with everything in life it requires diligence, effort and patience to be successful, but for it’s enabled me to enjoy a very prosperous retirement for quite a number of years now.

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