and this excellent comment has not yet had adequate answer:
The answer I try to find is what do they do with the stable coins after you deposit it on their platform to gain interest? It seems to me they have to do something with it. How else can they offer you 6.5% interest on it if they didnt? Bitgo insurance is only valid when the crypto is stored in their cold storage solution. So how can it be in their cold storage solution and do nothing and still produce 6.5% interest? And if they do lend out the stable coins or do something else with it how can it still be insured?
I asked this at the customer support but they cant seem to answer this question when I asked them directly. In their white paper, it seems as they use the deposits for interest gains to lend out to the borrowers again but customer service wasnt able to confirm that either so Im hoping to find an answer to this.
I think the question could've been worded a bit better, as it's quite obvious that your capital is probably used to collateralize/give out these loans. In what way however your coins are insured, are indeed really interesting, and very unclear.
Bitgo insurance is only valid when the crypto is stored in their cold storage solution. So how can it be in their cold storage solution and do nothing and still produce 6.5% interest?
This question is indeed a bit more interesting, although i think the whole Bitgo is mostly a marketing ploy.
Or they must have some connection to a bank which allows them to lend capital to THEM over your collateral that is stored in Bitgo's cold storage. Which i doubt with Bitcoin (very unstable), usage of a stablecoin could make things a bit more likely, but still a pretty slim chance of this actually being the case. (And really, should not be assumed!)
The weird wording of all these companies using Bitgo to "insure customer funds" instantly makes them sketchy to me. It'd tread really careful with any of these loaning sites that offer a fixed interest rate.