Analyst: This Altcoin Has Significant Risks! Stay away

A crypto analyst issues a risk warning for a DeFi altcoin project. In this context, they say that Ribbon Finance’s loan work is a significant risk for personal lenders. Ribbon loan provides unsecured loan to approved market markers (MM). Also, in cases like Wintermute, the platform failed to take note of the MM’s credit profile.

Altcoin project has capital inefficiency problem

A crypto trader and analyst, nicknamed Forecastoor, has evaluated unsecured lending platforms and the risks they pose to individual lenders. The analyst notes that both Ribbon Finance (RBN) and Clearpool Fin have made loans to market maker Wintermute. However, the analyst determined that the rates were different. Ribbon Finance applies an Annual Percentage Rate (APR) of 7%, while Clearpool Fin applies an APR of 11.64% based on Wintermute’s credit profile.

It’s in the middle As you follow, market maker Wintermute recently lost $160 million to a DeFi hack. In addition, he repaid the $92 million TrueFi loan the day before its due date. The prominent market maker has lost valuable money due to hacks in the DeFi ecosystem. As a result, his credit profile was significantly compromised.

Forecastoor suggests that if Wintermute runs into a credit crunch, the market maker will have a high incentive to borrow all its liquidity needs from the Ribbon Finance Lending Pool (LP). This essentially means that all lenders will be locked down and unable to withdraw their funds.

Personal lenders need to be careful with Ribbon Finance

Ribbon Finance’s lending work does not have a predefined loan term. That is, there is no deadline for repayment of the debt. Therefore, it is possible for the market maker to avoid default as long as it repays the least interest. However, this also means that individual lenders will not be able to withdraw their capital as they will remain locked in and cannot be classified as a technical default.

Even if sentiment drops and all liquidity in the pool is withdrawn, individual lenders have no luck. Because the withdrawal processes work according to the ‘first come, first served’ basis. This is why any existing random liquidity is being removed by Ethereum arbitrage trading bots (MEV bots).

Therefore, the analyst warns individual traders to be careful when lending with Ribbon Finance. It also advises them to be aware of the significant risks that the platform’s lending artifact has.

At press time, the altcoin is trading at $0.327, up 0.26% on a daily basis, according to CoinMarketCap. However, the altcoin price followed a fluctuating course throughout the day.

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