And the Crypto Andys were all like "you just don't understand DeFi!" to which the retort is "No, you just don't understand finance".
Finance is the way it is for many reasons. There are thousands of years of lessons that have made the system the way it is. I get the innovator mentality of sweeping away the old but there seems to be a fine line between innovation and ignorance.
I'm just sitting on the sidelines watching people relearn all the lessons of finance the hard way, some because they think they understand finance because because they understand merkle trees and consensus protocols but really most just want to get rich quick.
If you believe the statement "if someone is promising you consistent above-market returns it's either a scam or there is unknown or undisclosed risk" it might be true that you don't understand DeFi to some degree. DeFi isn't a single market, it's millions of micro markets that are accessible through what amounts to a single API.
So when you have millions of markets with different returns that can be traded in every imaginable way (and some you probably haven't imagined), throw in an insane amount of dumb money, people willing to borrow at high interest rates (relative to the real world), and a laundry list of factors that introduce inefficiencies into the market, it's quite easy to find pockets of above-average returns if you're smart. I have no idea if Stablegains was actually smart, but it's more than possible to achieve above-market gains in DeFi without exposing yourself to outsized risks.
"Insane" is subjective. The point is nothing safe yields ten or 20%. Someone saying "you will not lose your funds" [1] when paying above-market yields is lying.
[1] https://stablegains.zendesk.com/hc/en-us/articles/4402680425...
There are funds out there that conduct these activities, I know because I recently consulted for one. They are promising risk free returns and getting them.
There are things that exist in DeFi (such as flash loans) that have no real world equivalent, which is why blanket statements made about traditional markets don't necessarily apply. If used properly, these things do in fact offer "too good to be true" types of returns.
Is your counterparty risk always zero (between you and the chain)? Custody? What if a chain is halted or amended?
These systems run on novel rails. You couldn’t honestly tell an investor “you will not lose your funds,” and you’d refrain from using the word “deposit.” Because you’re trying to honestly communicate an opportunity, not to defraud.
In the case of flash loans/swaps, the answer is yes. It's 0. Further, I never have any capital at risk, all of my bots use flash loans/swaps. These transactions are atomic, which means that either all parts of it succeed or they all fail (it's a "revert" in blockchain parlance). So I can borrow $200 million without any prior permission and do an arb/liquidation or anything else I want with it for the life of my transaction, with the only requirement being that I must return it by the end. If my arb/liquidation/whatever succeeds and I return the loan, I keep the profits. If not, it's as if the whole thing never happened. The only risk is the transaction fee, which on the chains I do this on are miniscule.
I realize that it sounds unbelievable, but it exists. My code does thousands of these daily. I am not the only one doing this. See https://eigenphi.io/ . With the exception of sandwich transactions, every one of the bots you see on there is making profits without any capital at risk.
The risk of the trade on chain defaulting is virtually non-existent, agreed. Custody risk is never zero. Dollar in / dollar out returns involve lots of counterparties.