Thank you for writing this. I have around 6 figures of student loan debt and every time I read your blog and get more of your insights, I feel a bit better about myself and smarter each time
TY for this. Putting my $90k piece of paper to use:
Start with the assumption that markets are somewhat efficient at pricing perceived risk. Most of the world is still at Paul Krugman levels of NGMI perception - "*All* crypto is a scam".
The Bowtied thesis is that *some* crypto is not a scam. There should be Alpha in this area as long as public perception doesn't match market reality.
I'm trying to better understand the dislocations, especially after the posts by BtB recently. I'm late to the game I think, but also not really understanding how this works and how to seek and find these dislocations that can be capitalized on. Hoping to get any pointers.. thank you
Don't the banks lever up 10x on the money they take from customers? So that $1000 deposit is lent out 10 times over at 4%? Isn't that why bank runs cause massive problems?
In contrast, DeFi is overcollateralized (except flash loans). Doesn't that tip the balance more towards TradFi?
How does DeFi make the jump into standard retail loans? Much of the banking revenue comes from mortgages, car loans, lines of credit, personal loans, etc. Many of these are uncollateralized or collateralized with objects in the physical world.
It seems that on the retail side, this is where DeFi will eventually need to compete with banks the most as it's a large portion of banking revenue.
If you have $40,000 in ETH and want to stake it great, but what about the guy who just wants to (stupidly) take out a $40K loan to buy {insert consumer product}. Will DeFi touch that?
DeFi offers a higher yield, as it is riskier & is trying to win customers. But can it loan out at a higher percentage than 4%? If not, then the higher yield paid to customers will cut it's margin.
e.g. DeFi gives 3% interest and earns 4% on loans. Now it is in a similar position to TradFi
The other question is whether DeFi can make as much on loans as TradFi, as a new offering. Does it loan out at 4% or at 3.5% in order to be more competitive.
It seems the sweet spot for DeFi is to give marginally better rates than TradFi competitors without cutting too much into their own margin. Then the question is whether it can find a large enough body of customers using this approach
The structural inefficiency is something Anchor Protocol (on the Terra blockchain) is already exploiting to provide 18-20% APY. They take in Luna/Eth as collateral for loans, and allow anyone to deposit UST into their Earn. It's brilliant. Exactly as you mentioned, they keep the APY high by cutting out the middleman costs.
And the 31x is net income vs market cap! We are early
Thank you for writing this. I have around 6 figures of student loan debt and every time I read your blog and get more of your insights, I feel a bit better about myself and smarter each time
TY for this. Putting my $90k piece of paper to use:
Start with the assumption that markets are somewhat efficient at pricing perceived risk. Most of the world is still at Paul Krugman levels of NGMI perception - "*All* crypto is a scam".
The Bowtied thesis is that *some* crypto is not a scam. There should be Alpha in this area as long as public perception doesn't match market reality.
Excellent content as always!
I'm trying to better understand the dislocations, especially after the posts by BtB recently. I'm late to the game I think, but also not really understanding how this works and how to seek and find these dislocations that can be capitalized on. Hoping to get any pointers.. thank you
Can you address this Hex scam, more and more friends are falling for it hard. Hate to see it but their gains are massive right now
Don't the banks lever up 10x on the money they take from customers? So that $1000 deposit is lent out 10 times over at 4%? Isn't that why bank runs cause massive problems?
In contrast, DeFi is overcollateralized (except flash loans). Doesn't that tip the balance more towards TradFi?
Great content as usual.
How does DeFi make the jump into standard retail loans? Much of the banking revenue comes from mortgages, car loans, lines of credit, personal loans, etc. Many of these are uncollateralized or collateralized with objects in the physical world.
It seems that on the retail side, this is where DeFi will eventually need to compete with banks the most as it's a large portion of banking revenue.
If you have $40,000 in ETH and want to stake it great, but what about the guy who just wants to (stupidly) take out a $40K loan to buy {insert consumer product}. Will DeFi touch that?
How did you come up with the 3x more efficient? 1.25Tx3
TradFi gives 0.5% & loans 4%
DeFi offers a higher yield, as it is riskier & is trying to win customers. But can it loan out at a higher percentage than 4%? If not, then the higher yield paid to customers will cut it's margin.
e.g. DeFi gives 3% interest and earns 4% on loans. Now it is in a similar position to TradFi
The other question is whether DeFi can make as much on loans as TradFi, as a new offering. Does it loan out at 4% or at 3.5% in order to be more competitive.
It seems the sweet spot for DeFi is to give marginally better rates than TradFi competitors without cutting too much into their own margin. Then the question is whether it can find a large enough body of customers using this approach
so 3x tradfi yield means a stabilized 1.5% ish yield in defi over time?
The structural inefficiency is something Anchor Protocol (on the Terra blockchain) is already exploiting to provide 18-20% APY. They take in Luna/Eth as collateral for loans, and allow anyone to deposit UST into their Earn. It's brilliant. Exactly as you mentioned, they keep the APY high by cutting out the middleman costs.
Highly recommend looking into it.