Decentralized Leverage, Baby
Debt. Arguably one of the most controversial financial terms in modern history. Embroiled in the conversations of 45 million student debt holders, 55% of Americans who carry a month-to-month credit card balance, and the mortgage holders that account for 70% of all American debt. Use too much and risk defaulting, use too little and miss out on opportunities due to temporary illiquidity. Even nation-states use debt to boost productivity - global debt rose 28% to $226 trillion in 2020, constituting 256% of global GDP.
Historically, borrowing from conventional banking institutions has come with restrictions such as having a good credit score and sufficient collateral to convince them that a given debtor is credit-worthy. Decentralized lending and borrowing remove this barrier, effectively allowing anyone to collateralize their digital assets to obtain loans without the need for a bank account or a credit check.
For the risk-averse, lending assets on these platforms can also generate additional yield driven by borrowing demand. Relative to yield farming covered in the previous issue, this source of yield is superior as it is derived from organic demand instead of token inflation.
The Mechanics
To illustrate fund flow mechanics in a decentralized money market, we exa...Reports you may have missed
BRC-20 FEVER Ordinal transactions on Bitcoin have skyrocketed in the last few months, leading to an all-time high for daily transactions and pushing Bitcoin network fees to 2-year highs. The activity throttled BTC’s network so much that Binance was forced to temporarily shut down withdrawals and implement Lightening Network to service outflows without paying excessive fees. There are currently two types of Ordinal transactions on the network: 1) Ordinal NFTs...
FIGURE: PEPES WEARING CONES TO CELEBRATE NEW CURVE ECOSYSTEM PROTOCOL INVESTMENT THESIS Out of the numerous tokenomic designs that emerged (and failed) last cycle, the vote-escrowed model proved objectively most ‘feasible’, as evidenced by Curve’s dominant position in TVL amongst DEXs. Control over a protocol’s gauge emissions made sense to many, assigning real value to governance tokens. The second-order expectations that liquidity would follow did as well. However, maximizing yield...
FIGURE: PEPE UNSHETH-ING ITS ETH TO SOLVE MULTIPLE DEFI PAINPOINTS Since the Beacon Chain launch in Dec 2020, Ethereum users could stake bundles of 32 ETH to secure the network in exchange for priority fee rewards. While these staked ETH[1] are ‘productive,’ many have opted against staking given its operational complexity and illiquidity. Liquid staking projects solve for this by managing validator uptime and offering liquid staking derivatives (LSDs) to...
FIGURE: PEPE LEARNING ABOUT GHO AFTER BEING RUGGED BY UST Source: Fundstrat INTRODUCTION Founded by Stani Kuchelov, Aave (formerly LEND) is the largest DeFi lending market by TVL (~$8b across v2 and v3) and the fifth largest dApp overall. The protocol is currently live across five networks and 11 markets, hosting more than 30 assets across its platform. In July ‘22, Aave announced that they are launching their native stablecoin,...
Articles Read 1/1
🎁 Unlock 1 extra article by joining our Community!
You’ve reached your limit of 1 free monthly articles. Please enter your email to unlock 1 more articles.
Already have an account? Sign In eb7aea-52961d-445142-8bc836-081249
Already have an account? Sign In eb7aea-52961d-445142-8bc836-081249
