Doc's Daily Commentary
Mind Of Mav
Savings Accounts Have Changed
You are losing money right now. Bank interest rates are so chronically depressed due to over a decade of quantitative easing that the general population no longer has an easy way to save effectively.
Satoshi Nakamoto’s first block of the Bitcoin blockchain is inscribed with the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Right at the heart of the conception of cryptocurrency — inscribed forever into the genesis block of Bitcoin — is the notion that as the levers that control the creation and administration of money is in the hands of central powerful elite, then the wealth of a nation and its citizens, is not guaranteed.
Are Bank Interest Rates Equal to Theft?
It’s a notion that has risen in popularity among crypto devotees, sparking a counter-power narrative that posits cryptocurrency as the tool of the renegade and a chance for every man to seek freedom from financial struggles, and more so, a chance to break the current status quo.
It’s possible that this narrative has gotten a bit carried away, and as more institutions get involved in the technical possibilities and emerging financial hotbeds of the cryptosphere, it’s more likely that cryptocurrency will be a new conception of money and monetary application that revitalises and renews the system we have, rather than an apocalyptic leitmotif that completely replaces all financial tradition.
Still, the fears of the counterculture crypto tribe are not unfounded. The continuing license for governments to print money to absorb the economic shocks, either of their own creation or black swan events like the coronavirus pandemic, are stretching the limits of existing systems to the point where the population can no longer justify supporting it.
The world is addicted to cheap credit. Consumer credit cards still enact terrifying tolls for their vulnerable users, but almost all other forms of credit — mortgages, bank loans, business loans — are state-subsidised to the point of sector-bribery. A crypto player may put a few hundred dollars of hard-earned money into a DeFi yield farm, but the Wall Street bankers are gambling billions printed at taxpayer’s expense to deliver stock dividends to a select few.
Why Print Money?
Every time new money is printed to keep interest rates low and keep the economy turning, wealth is taken away from the savers of the population and pushed into the hands of institutions putting it all on red. It’s why, now, the official bank interest rate in the U.K remains stuck at 0.1%. The U.S is not much better, with a Federal Funds Rate at 0.25%. Individual savers earn a measly 0.01% in savings accounts at banks, whilst the bank lends money out and earns a much higher rate of return. Diligent hard working families are seeing their future prosperity stripped away to support the avarice of those involved in investment banking. At current interest rates, you would have to entrust 1 million dollars of your assets to the machine to emit a $100 dollar yearly payout from a US Bank savings account — maybe enough for a nice dinner for two?
The Consumer Price Index in the US is 4.5%, so inflation alone is outstripping your capital’s value. In some places, the concept of paying out on your assets is already lost, as Japan, Switzerland, and European Central Bank treasury bonds charge negative interest rates. That’s right — to store your capital in the bank, you need to pay the institution.
Ever since the Weimar Republic and the ravages of hyperinflation, where wheelbarrows of Deutschmarks were used to pay for bread, governments have been — quite rightly — terrified of the prospect. Yet if the buzz of cheap credit was to stop, the entire economy might find itself plunging into an abyss of its own making — too fast for any quick recovery to be possible.
This creates a situation seemingly without exit — you cannot reduce the dread of inflation, nor can banks begin to offer decent interest rates that remain agnostic in face of financial market moves. Not without structural change, that is.
Rebalancing the Scales with Decentralized Finance
Decentralized Finance (DeFi) removes the levers of wealth creation out of the hands of the few and makes it, well, decentralized. In the DeFi space, yields that keep pace or completely blow through the rate of inflation are the norm. Of course, then there are also DeFi farms that promise extreme yields on deposited capital, oftentimes of a few several thousand percent per year. While it’s true this kind of yield is possible for brief periods of times due to the mechanics of DeFi (which we’ll explore later), they carry the type of risk that would make a hedge fund manager blanch in fear, and are certainly not a sustainable solution to modern economic problems.
However, there are plenty of DeFi yield protocols that offer “sensible” rates of interest on stablecoins and volatile cryptocurrencies. As value-pegged assets, stablecoins are rightfully considered “SAFU”, with their value bound to remain equal to real life currencies like the USD through various means. What does this mean? Well, rather than keeping your USD in the bank and losing % day-by-day, you now have the option of moving your currency into the DeFi realm. Why? Depending on your deposit value, you’ll rid yourself of inflation and even make passive income.
For example, Gemini offers approximately 8% yield on stablecoin deposits, and Coinbase offers around 6%, which are percentages that outstrip the 5.4% inflation rate recorded in the US in July 2021. Mind that these are centralized providers who run their systems akin to a traditional institution and do all the DeFi work behind the scenes for you. By lending or staking cryptocurrency yourself in protocols like MakerDAO, Compound and AAVE, the rewards can be higher still, while you retain control over your private keys. Currently, over $87 Billion US Dollars are locked in DeFi protocols, and despite a natural market ebb and flow, the trend remains — like all crypto — upward.
How DeFi is Creating Fair Yields
So how does DeFi offer such huge yield possibilities in the face of stringent economic storms? Well, for one thing, most stablecoins and cryptocurrencies are not subject to artificial inflation and printing that caused many of these issues in the first place. Most yields are tightly governed by participation in liquidity provisioning that is bootstrapping protocols and allowing for large credit provisions to be provided to traders. The demand for governance tokens running these protocols, and their implicit value, means that yields can also be paid out in a protocol’s native token — which can then be traded on the open market. Do mind that this is not a rule — yield is payable in the native deposited token or stablecoin, in a protocol’s governance token, in both forms, or in seemingly-unrelated coins.
Liquidity provisioning also exists on DEXs like Uniswap. By providing liquidity to trading pairs, you — not a bank or other financial institution — are acting as a decentralized market maker for that trading pair. In doing so, you earn yield on your capital in the form of transaction fees when people use the pairing, and sometimes, in the form of governance tokens.
Furthermore, as there are high-end traders who can afford the interest on these crypto-loans, as the resultant profit from their trades is superlative, they are happy to pay that rate to secure the capital they need without losing exposure to their underlying asset.
Finally, protocols exist that algorithmically trade your capital to constantly acquire the best rate of interest for you, or adjust as the market does. Compound, for example, has constantly shifting rates that reflect demand for cryptocurrencies. Rather than a bank taking four months to update their rate after a thousand laborious meetings (i.e, your wasted capital), the protocol does so second by second so that borrowers and savers are constantly getting a fair market price for their participation. It leverages audited smart contracts to manage all pooled capital, mathematically adjusting the rates for borrowers based on supply and demand, whilst giving asset providers a return on their investment.
How You Become the Bank and Why DeFi is Superior
Think of it this way. When you put your money in the bank, they become a lender using your money. After paying for all the things required to make a bank function, including the pens you use to sign your cheques, and dividends for the executives running the company, the rest is profit — that is then fed back to you, the account holder, as a reward for your participation in the form of your interest rate that is often a fraction of what the bank may have earned.
With DeFi, though, as it is automated through smart contracts, that financial wastage is circumvented. This means that the rate borrowers pay to access capital is more efficiently transferred to the lenders providing it and, as no central institution is squatting in between eating up all the overage, the return is correspondingly higher. DeFi makes the general population the bank — decentralized finance remember — and so the money is moved more efficiently from the borrowers to the savers without some antique processing dinosaur stealing everything in between.
DeFi yields, then, will always outpace standard bank yields. It’s just a cleaner system. Moreover, when BTC plummeted 50% in May, the nascent DeFi industry absorbed the shock comfortably. Many expected that, with the underlying value of the crypto-collateralization that makes up the bulk of these protocols fell so sharply, that the protocols themselves would cease to be able to pay out the yields or would collapse entirely. Nothing of the sort happened. The math was sound, and the value locked within DeFi protocols is still rising as people realize the fantastic opportunity on offer. This applies to both stablecoins and volatile cryptocurrencies, with the latter oftentimes offering significantly higher gains, but an equally higher risk ratio. When earning yield in kind for coins like Ethereum, Binance Coin, or Cake, you subject yourself to volatility risk, as well as impermanent loss. However, the upside on 15% APY for ETH might vastly surpass a stablecoin’s yield if the ETH price doubles within the year.
Future trends, like cross-chain trading or the appearance of stablecoins pegged to national currencies other than the USD, will further advance the DeFi industry. The fact is that we are still early in the grander scheme of things. This financial revolution will likely gobble trillions in value, with the demand for liquidity provision, DeFi credit markets, and simple asset swaps skyrocketing within the long-term. As more of the world’s assets will be moved on-chain and as more opportunities are created, having capital on-chain becomes a no-brainer.
What is the goal of this portfolio?
The “Three Token Pillars” portfolio is democratically proportioned between the Three Pillars of the Token Economy & Interchain:
CryptoCurreny – Security Tokens (STO) – Decentralized Finance (DeFi)
With this portfolio, we will identify and take advantage of the opportunities within the Three
Pillars of ReadySetCrypto. We aim to Capitalise on the collective knowledge and experience of the RSC
community & build model portfolios containing the premier companies and projects
in the industry and manage risk allocation suitable for as many people as
The Second Phase of the RSC Community Portfolio V3 was to give us a general idea of the weightings people desire in each of the three pillars and also member’s risk tolerance. The Third Phase of the RSC Community Portfolio V3 has us closing in on a finalized portfolio allocation before we consolidated onto the highest quality projects.
Our Current Allocation As Of Phase Three:
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What is the goal of this portfolio?
Current Top 10 Rankings:
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