Posted on Jan 29, 2022Read on Mirror.xyz

In the dark times we pivot back to fundamentals - A case for Crypto and DeFi

As crypto adoption continues to rise and the industry faces an increased skepticism (as we call it FUD - fear, uncertainty and doubt), this small piece is intended to explain why normal consumers should start thinking of crypto in a more forward-thinking manner. In my humble opinion people criticising the industry at this stage are no different from the Daily Mail classifying internet as “just a fad” in the year 2000.

Disclaimer: none of this is financial advice, this is simply food for thought.

Recently I’ve been so deeply immersed in the crypto world that I forgot what are the options out there for people that still haven’t discovered our wonderful industry. This until I had to log-in into my home banking system and in the login screen there was a promotional banner that offered:

1.5% APY on new deposits for up to 6 months

I have to admit at first I didn’t see the decimal point and thought “ah good for them, they’re finally catching up“, but then I looked back and saw the dot and it got me thinking.

Current economic snapshot

We’re living in unprecedented times, we’re now entering the third year of a global pandemic that brought the whole world to its knees. The economy allegedly took a hit, even though governments have tried to synthetically absorb it by adopting an expansionary monetary policy. What does this mean?

money printer go brrr

As highlighted by the graph below the US Federal Reserve printed roughly $434 billion USD since January 2020, that equates to 19.43% of the total USD in circulation.

What is the major consequence of an expansionary monetary policy?


Yes, on a global scale our money is losing value by the second, to what degree? It depends from country to country, in the US inflation just hit 7% (if it remains stable $100 USD today will be worth $93 USD next year), mind you some inflation is good, a lot of inflation is bad. So what are the measures available to us to counter it?

Growing up I always heard

Don’t stash your money under your mattress, put it in a bank they pay you to keep your money

What if this doesn’t work anymore?

Real world example

In my home country inflation just hit 3.9%, and the bank mentioned in the opening paragraph is of course Italian, so what does this mean? With the inflation at 3.9% and a promotional interest rate on deposits at 1.5% my money loses 2.4% of value YoY. There are more lucrative ways to make money but in the real world to access them you need a decent amount of capital otherwise banks aren’t interested.

Loan rates are (momentarily to help people get through this pandemic) at an all time low of ~2.2% and has been in steady decline since 2012.

DeFi world example

Inflation rate is still the same at 3.9% but let me bring you an example using Anchor Protocol. What is Anchor?

Anchor is a decentralized savings protocol offering low-volatile yields on Terra stablecoin deposits. ... The Anchor protocol defines a money market between a lender, looking to earn stable yields on their stablecoins, and a borrower, looking to borrow stablecoins on stakeable assets.

In layman terms this means on Anchor you can deposit your money and earn interest and you can borrow money, at what rates? This is the fun part

Anchor works on the Terra ecosystem, within this ecosystem you have a stablecoin (cryptocurrency developed to mimic 1:1 the value of the dollar) named ust (TerraUSd). If you deposit your ust on Anchor the average apy is 19.5%. Let me repeat, depositing dollars will earn you nineteenpointfivepercent a year, if you take away capital gain tax (25%) and inflation (3.9%) $100 USD now will be worth roughly $110 USD in a year.

Loans are offered at a ~-2.2% rate which means:

Yes, you’re actually getting paid to take out a loan. Mind you, crypto-backed loans are subject to collateral volatility so this is riskier than simply depositing dollars but it’s still an extremely viable way to get liquidity without selling assets.

A case for DeFi and Crypto

Most financial crises to date have been the consequence of synthetically created products, greed, with some human negligence sprinkled on top. Unfortunately even DeFi suffers of greed and occasionally a protocol offering unrealistic APY’s or unreasonable leveraged positions may go bust and people will lose money but in the DeFi world there is no government bailout for the protocols. This world was built on top of Satoshi’s vision so let’s remember what’s written in Bitcoin’s genesis block:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

So let us remind ourselves why DeFi was born:

  • To democratise access to financial services for everyone in need.
  • To offer higher yields than traditional financial institutions thanks to a much more efficient and streamlined operation.

Let’s keep building towards a better future.