The Bull Case for DeFi: Matthew Roszak

Capital "treadmills," yield and ETH at a lifetime high.

AccessTimeIconFeb 18, 2021 at 5:32 p.m. UTC
Updated Sep 14, 2021 at 12:13 p.m. UTC
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Yield bugs
“People are building treadmills for capital,” billionaire venture capitalist Matthew Roszak said on CoinDesk TV this morning. The founder of Bloq, a blockchain enterprise software company, predicts the growing world of decentralized finance (DeFi), currently valued at $40 billion, could “add another zero in a year from today.”

“The innovation cycle in DeFi is happening in real time,” Roszak said. Most notably is the yield opportunities presented across the DeFi stack. While institutions haven’t yet plowed funds into “yield farms,” typically named after foods like Yams, Pickles or Sushi, there is a “macro need” for returns on capital. Right now that value is accruing to early adopters.

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But what would it take for legacy institutions to take a jog on the DeFi capital treadmill? A comparable level of risk might be found in corporate junk bonds. Given the historically low rates on U.S. Treasury bonds and typically safer investments, traders are putting funds in higher risk, higher reward junk bonds. In fact, the demand for this debt has actually pushed junk bond yields to historic lows. (Bond prices and yields are inversely correlated, as demand pushes a bond’s price up, yields fall.)

The measure for the Bloomberg Barclays U.S. Corporate High-Yield index dipped to 3.96% in early February. MarketAxess Holdings President and Chief Operating Officer Chris Concannon said yesterday on Bloomberg that electronic high-yield bond trading is booming. In essence it just comes down to what opportunities are available.

Right now, many institutions are probably aware of the opportunities present in DeFi – the U.S. Federal Reserve has certainly taken note – but may be hesitant to jump into a sector known that is still working out its kinks.

Roszak noted there’s technology risk – in terms of bugs, of which there have been many – as well as adoption risk – related to who is joining the market and user experience issues. But the new capital markets are real and they’re here to stay. “As the lens the market starts to look through is going to get more and more refined as best practices on how to score risk start to get unpacked,” Roszak said.

As Jeremy Allaire, CEO of Circle, one of the members of the CENTRE Consortium that issues a key DeFi stablecoin, USDC, put it: “People are starting to realize how profound this new infrastructure for the internet is.”

Other stories

Data dot: Are banks playing with small-cap crypto?
Goldman Sachs, ICAP, JPMorgan and UBS have invested in a financial product that tracks Polkadot’s cryptocurrency, DOT, the fifth-largest digital asset by market cap. These banks and brokerages purchased small amounts of shares in Switzerland-based 21Shares’ exchange-traded product, according to Bloomberg data. Major institutions have a growing appetite for bitcoin (BTC) and ether (ETH), which may also be extending into lower-capped coins as the market rally continues. Maybe they claimed their POOL airdrop?

Bull and bear case for ETH
Ether continues to set new lifetime highs as it charts a course to $2,000. CoinDesk markets reporter Omkar Godbole looks at signs the cryptocurrency may be overleveraged in the derivatives market and heading towards a patch of volatility. That said, other indicators show ETH could continue to climb – coins are leaving exchanges and the number of active addresses is increasing.

Mining mania
Nasdaq-listed Ebang will start mining bitcoins using its own machines and competing brands. There’s something of a tried and true method for mining manufacturers to turn on their own rigs or invest in mining pools, though these operations often run into problems during market downturns. In one sign of mining mania reminiscent of the 2017 bitcoin bubble, a Hunan, China-based tea retailer announced a “critical strategic expansion” into crypto mining.

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