KuCoin attracts too high returns on Bitcoin Dual Investment Earn products

There was a time when having sky-high APRs on crypto interest products felt like the best way to drive adoption. That time has passed.

This week, crypto exchange KuCoin is facing scrutiny because the KuCoin Earn site boasts APRs of 233.15% on Ethereum253.28% on Bitcoinand 100% on Tether deposit. Although the company’s website says the Tether (USDT) prices are part of a promotion, the ETH and BTC prices listed correspond to an advanced “double investment” KuCoin Earn product.

All the attention has sent 24-hour volumes on the exchange, which were $640 million yesterday, up to $862 million today, making it the fifth largest centralized exchange by normalized volume, according to CoinGecko.

That has raised some eyebrows on Crypto Twitter, with defenders dismissing the criticism as FUD (a crypto-native acronym for fear, uncertainty and doubt).

Dual investment products are derivatives that allow customers to deposit money in one currency, such as BTC, and potentially make money by withdrawing it in another currency, such as USDT, when the contract expires and needs to be settled.

They tend to offer high interest rates because they can be very risky. That is because it is a non-principle protected product. So instead of just earning a poor or no return on the funds invested, investors risk receiving less money than they invested. That’s why critics of these products like DeFi Pulse co-founder Scott Lewis call these types of schemes “predators.”

But the timing of the product’s debut on Wednesday rattled users, who believe it is an attempt to get more deposits on the exchange. At the beginning of the month, after problems began to emerge for now-bankrupt FTX, CEO Johnny Lyu said on Twitter“Protection of user funds is top priority at KuCoin. We will release Merkle tree proof-of-reserves or POF in about a month.”

KuCoin published balance on some of the wallets, and their addresses, on Nov. 11, the same day FTX filed for bankruptcy, but has yet to submit an audit from a third-party accounting firm. Meanwhile, DeFi Lama and Nansen list their reserves at $2.2 billion and $2.5 billion, respectively. However, there is no way for the public to know, based on chain data or proof of reserves, what an exchange’s liabilities are, or whether the exchange has enough assets available to cover those liabilities.

The main KuCoin Updates account spent most of the day fielding complaints from users who couldn’t withdraw their money and pointing people to a blog post about double investment product. Representatives for KuCoin did not respond Decryptits request for comment.

Both the main KuCoin Twitter account and Lyu have attempted to dispel rumors that Exchange is insolvent, meaning it does not have enough assets to cover its debts.

“KuCoin’s dual investment product has created some real buzz,” Lyu wrote Wednesday morning. “Please note that it is not a stake or guaranteed interest product and may involve earning passive income with potential risk.”

Incredibly high interest rates have attracted attention throughout the industry. They are the reason critics refer to any crypto project as a Ponzi scheme, where early investors are paid large returns by using money from newer investors. The illusion continues as long as the originator can continue to bring in new investors.

If a user clicks on the icon to expand the ETH row on KuCoin Earn Websitewill they see that the prices of staking ETH, 4.39%, and depositing it in a savings account, 2%, are less conspicuous.