Circular lending

[Master Jon]

I came across the term circular lending for the first time yesterday while reading about the latest crypto crash, and… wow, the whole concept feels like a financial ouroboros, money lending itself in a loop until reality catches up. From what I gathered, it’s when platforms or institutions borrow against assets, then use those borrowed funds to buy more of the same assets, and keep repeating the cycle. As long as prices climb, everyone’s rich on paper but when the market drops, the entire house of cards collapses fast.
Got me thinking about how much risk hides behind glossy investment products, especially ones marketed as innovative or decentralized. For those of us on the path to (or already enjoying) early retirement, this is a pretty loud reminder about diversification and not chasing the next big thing too hard

 

[chef nancy]

For early retirement planning, it's a good gut check, if returns seem too consistent or the mechanism isn't transparent, you're probably someone else's exit liquidity

 

[Gene75]

@Master Jon just wanna tell you that circular lending is so angerous bcs it creates fake liquidity. the entire crypto ecosystem, when it engages in this, essentially creates money out of thin air based on the illusion of rising asset values.
Platform A loans to Platform B, who buys more of Asset X, which pushes the price up. This makes Platform A's collateral look better, allowing it to borrow more. It’s a closed loop hype cycle that doesn't actually bring in new, outside capital.

 

[Mcqueen1970]

The scary part is how many stable products had this stuff buried in the fine print. I agree with what you guys have said. @Master Jon @chef nancy and @Gene75 what percentage of your portfolio are you comfortable keeping in anything crypto adjacent? I've been rethinking my risk tolerance since seeing how interconnected everything really was