Crazy DeFi interest rates explained
Plus how late/early you are to NFTs and web3 is growing before our very eyes!
New to crypto? Cryptocurrency Basics is a 9 minute video that serves as a great intro to the world of crypto.
Hey TGO Fam! We’re up to 175 strong now. That’s exciting! Know what else is exciting? DeFi. It’s one of the areas within crypto where you can make money even when the market goes down and today I want to improve your understanding of how DeFi can offer such enticing yields. Also, we’ll explore where we are in terms of market adoption with NFTs and finally we’ll talk more about the rise of web3.
In this issue:
Where does that crazy DeFi yield come from?
Are you late to NFTs?
YouTube loses talent to Polygon ($MATIC)
Where does that crazy DeFi yield come from?
In the latest episode of the Means of Creation podcast Nat Eliason explained where those juicy DeFi yields come from and why you don’t find that same kind of interest offline (ie with traditional banks).
Basically (*Chris puts on his summarizer hat*):
Interest in the fiat world is determined by how much the US government charges banks to borrow money — something like 0-0.25%. In other words banks can essentially borrow money for free… meaning banks aren’t really willing to pay you much of anything for you to give them money.
In DeFi there’s no central bank (so nobody “setting the rate”) which means the amount of interest you can earn for your money is based on what other people are willing to pay for it. It’s based on supply and demand.
So a platform like Aave has a very clear rate at any given moment which tells you what it costs to borrow funds and then based on how much it costs to borrow funds they can tell you how much they will pay someone to deposit funds (that others will be able to borrow — i.e. liquidity).
So at the moment Aave will let a person borrow USDC for 3.8% variable APR. Where does Aave get the USDC to lend out? From people who deposit it. Why would someone deposit their USDC on Aave? To earn interest (which, at the moment, is about 2.8%). Aave happily pockets the difference of about 1%, the borrower gets a decent rate and the depositor gets a nice, juicy APY.
And now you know.
Are you late to NFTs?
The NFT sector has been on a tear lately… even as the rest of the crypto market has been tanking. Apparently the combination of socializing, speculating, displaying status, feeling like you belong and emotionally connecting via NFTs is… worth something. How long before the world catches on?
And here’s the thing: the blue chip NFTs that are worth something now (this early) are potentially only going to be incredible hedges in the future.
Don’t worry… it’s still early!
YouTube loses talent to Polygon ($MATIC)
Ryan Wyatt was, until recently, the head of Gaming on YouTube. Now he’s moved over to be CEO of Polygon Studios ($MATIC). People who doubt crypto and say web3 will never happen are simply not reading the headlines. Whether it’s talent departing web2-era companies to build on the frontier or web2 companies toying with the idea of incorporating elements of web3 in order to adapt to the coming order… the shift is clear.
As a YouTube creator myself I’m not sure how I feel about YouTube CEO Susan Wojciki’s hint about possibly incorporating NFTs into the YouTube experience… what are your thoughts?
See you in the next issue!