Quick Review of Yubibao

Chinese bitcoin traders should be familiar with the Huobi exchange. It is a mainland based digital currency exchange similar to other exchanges. With Bitfinex offering user generated leveraged trading, Huobi has created a Hong Kong based subsidiary called BitVC and a service within BitVC called Yubibao.  The reason why Huobi is separate from BitVC is because of the way leveraged trading is treated in mainland law. What makes the Bitfinex and Poloniex margin funding systems so innovative is they allow a free market for funding and this results in users funding their own margin trading without the exchange taking the principal credit risk. The Yubibao service within BitVC offers something similar, but in a simplified way (which brings with it greater risks but greater ease of use for less sophisticated users).

What the bitcoin financial world lacks right now is a type of savings and loan marketplace similar to traditional banks. There are bitcoin P2P site, but because of their design (their desire for Auto Invest in particular), these p2p bitcoin markets are the source of high risk/reward credits. Since there is no country currently offers a regulatory framework for a traditional bitcoin bank, there is a large untapped demand for a type of bitcoin savings account. There are a couple of services that come close (BTCPOP’s savings account) but none that reflect the actual risks and rewards of banking.

Yubibao attempts to fill this gap by providing a type of savings account that credits daily interest. The way it works is similar to Bitfinex because users deposit funds that are then used by traders as margin. Where Bitfinex and Yubibao are different is in the way Yubibao stands between savers and borrowers. Yubibao sets the rate of daily interest charged to each side and takes a fee of 20% for the service. This process makes it easier for savers to manage their accounts since they don’t have to get into the market and do it themselves, but it also means that Yubibao is taking on bunch of risks that Bitfinex is not. I noticed that the rate of funding on Bitfinex is higher than the rate of funding offered to savers on Yubibao, makes sense since the fees are higher on Yubibao.