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David Hoffman: Ethereum: The Final Bastion for Yield


In the old financial world, returns have dried up. US Treasury bond yields have never been so low. The 10-year government bond now offers you a yield of less than 0.9%. AAA corporate bonds don’t do much better at around 2.1% to 2.3%.

Knowing this while hearing about the Federal Reserve’s strong intentions to bring inflation above 2%, it’s no wonder investors are dropping low-yielding assets and making more speculative investments. The people distribute capital in an increasingly distorted way. How else will they get a return?

David Hoffman is the co-founder of Bankless, a content studio with a newsletter, podcast, and YouTube channel all about living a life without banks.

It is difficult to avoid income on Ethereum. The rate of return is the standard incentive for successful DeFi (decentralized finance) applications to attract capital.

At the simplest level, loan and credit applications like Compound and Aave offer 4.6% and 6.2% interest on deposited USDC, respectively. More sophisticated earnings aggregators like Yearn generate 7.8% in their basic earnings strategies and up to 16% in more aggressive strategies.

See also: What is Productive Agriculture? DeFi’s rocket fuel, explained

With an average trading volume of over $ 1 billion per week, Uniswap puts its 0.3% trading fees in the hands of those who have liquidated the protocol. Those who have delivered ETH and USDC to Uniswap have received an amazing APY of 35% on a hybrid position of 50-50 USD / ETH in the past 30 days.

No negative rates

The DeFi economy has a fundamentally different structure than its previous counterpart. Overcollateralization is required for DeFi to work. Nobody can borrow more than they have deposited, and this simple safety net has been the foundation DeFi has been able to stand on so far.

This is also the reason why Ethereum and DeFi will become synonymous with “yield” in 2021. In DeFi, interest rates cannot go negative. There is no room in DeFi for credit with broken reserves as that would break the trust model that these applications work with. To remove trust (and thus centralization), you have to secure too much.

Eliminating the broken reserve credit in the DeFi economy is why the rate of return will always be found in DeFi. A negative yield is not possible in connection or Aave. Mathematics doesn’t allow it. Because these logs are solvent-based in nature, in a scenario where credit demand is absolutely zero, the rate of return will also be zero, but not negative.

ETH: The internet connection

With the start of the Ethereum 2.0 Beacon Chain, the long-awaited ability to bet ETH and receive ETH-denominated returns was opened.

Source: Bankless

In addition to the local store-of-value qualities, the introduction of the ETH stake turns ETH into a capital asset that generates a cash flow for its owner. We’ve seen other protocols offer proof-of-stake returns on alternative assets, but ETH is uniquely compelling as it is also backed by Ethereum’s domestic economy.

As the size of the Ethereum economy grows, the returns on investment are meant to reflect that growth. The relationship between the Ethereum economy and ETH should be familiar to the typical bond investor: healthy economies are highly valued, so there is usually a premium associated with domestic bond.

Ethereum has no debts to pay off, it is inherently solvent.

Ethereum cannot default on its ETH payments to ETH bondholders. ETH is reliably issued to ETH bondholders to receive compensation for providing collateral for Ethereum. Ethereum doesn’t have to levy taxes or generate revenue to compensate those looking for an ETH denominated return. The removal of this requirement is a boon to the valuation of ETH bonds as there is no risk of default. Ethereum has no debts to pay off, it is inherently solvent.

Bitcoin’s recent intrusion into the minds of the old class of investors shows that people are interested in protocol-constrained monetary wealth. Furthermore, DeFi’s explosion, underpinned by extremely high returns not found anywhere else in the financial universe, shows how thirsty investors are for reliable returns.

The combination of ETH dividends to bondholders with restricted maximum issuance creates ETH’s uniquely compelling position as macro-assets in 2021 and beyond.

Last bastion for yield

In 2021, Ethereum will be positioned as the Schelling Point for earnings. As Bitcoin opens the doors to digital asset investability, in Ethereum it reveals a high-yield world behind it.

The variety of investment types and the different strategies for generating income are likely to attract the attention of all types of income seekers. Whether investors are looking for stable, low-risk, dollar-denominated returns or aggressive, high-yield speculative instruments, Ethereum offers investors a range of financial products to choose from.

See also: David Hoffman – Ethereum is the frontier of financial innovation

In addition to dollar-denominated returns, ETH is positioned as an internet bond as an instrument that offers upside potential for the growth of the Ethereum economy while generating an ETH-denominated return for those willing to accept its volatility.

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