January 20, 2022

How is this much yield possible?!

In Today’s Email:

🏦 The Digital Vault Business

🥊 Coinbase vs. Opensea

💵 How is this much Yield possible?!

Digital Twins

Holding anything valuable (like my Kobe rookie card) in my house is a huge pain

But now, I can go send it to a vault and also sell it digitally and transfer ownership (and sell it fractionally)

Two companies recently announced they’re doing this and I think it’s one of those super smart, no-brainer ideas:

1/ Otis Launched Otis House

2/ StockX Launched Vaults

Now, if you buy a Michael Jordan rookie card, you can send it to the vault and sell NFTs that represent partial ownership of it (and still retain partial ownership).

On the other side, as a buyer, I can buy the Jordan rookie, take no custody of it, and sell it whenever or I want (or have it shipped to me)

This is the future – bringing digital verification and instant liquidity of ownership to physical products.

Scott Belsky (Founded Behance) put it better than I could on what this opens up:

Coinbase vs. Opensea 🥊

The race for NFT market share of is heating up and the two biggest players are about to step into the ring

Earlier this week, Mastercard announced they’re teaming up with Coinbase to allow account holders to buy NFTs directly with their normal credit cards.

This happened right after OpenSea agreed to purchase Dharma, an ethereum wallet that gives users easy access to DeFi and NFTs– a product very similar to Coinbase Wallet.

Both companies are starting to infringe on the other's playground and I'm starting to get Ali vs Frazier vibes.

Two heavyweights trading blows for one of the fastest growing markets we've ever seen.

Nick Tomaino (early investor in Opensea and early employee at Coinbase) brought the heat on Twitter on how he thinks it plays out:

  • NFTs have a chance to flip cryptocurrencies

  • The biggest problem to be solved in NFTs is still the onramp for newcomers. Most buy ETH on Coinbase, send ETH to Metamask and then buy NFTs w/ ETH on Opensea

  • Direct USD -> NFT is coming and both OpenSea and Coinbase have a major opportunity here

  • Coinbase has the regulatory infrastructure to do USD -> NFTs well but lacks NFT expertise

  • OpenSea has the NFT expertise to do USD -> NFTs well but lacks the regulatory infrastructure

What horse are you betting on here?

The one with the existing distribution that can turn on a new “feature” or the clear leader in the current market?

Hit reply with your bet!

How is it possible to get this much yield?

When I started diving into crypto, I was confused.

How can crypto give me so much more APY than my traditional bank?

Just where is all this yield coming from? Must be a scam.

I've learned to get curious when I don't get something, so to understand where this yield comes from, we have to understand how traditional banks like Chase and Wells Fargo generate their yield.

In the simplest terms, a bank offers you security of your funds.

When the majority of wealth was held in cash, this was really important.

Someone else would take responsibility of holding your cash and you could sleep at night knowing that no one was going to break into your house and steal all the money you’ve ever made.

The bank would then take your money and invest it.

The Majority of banks hold most of their assets in mortgages; one of the safest forms of investments. If someone doesn’t pay their mortgage, you can always foreclose on their house and recoup a portion of your investment.

Mortgages typically pay 3-4% interest. Wells Fargo currently owns $275B in mortgages and generates $8B a year in income with very little risk. They also invest in public/private equities and a variety of other financial vehicle.s

They then take that money they make using your hard earned money and pay you .1% in your savings account (and declining every year).

Then with the rest of the money they build their local branches, their big lavish corporate office buildings and pay their executives nice fat salaries while you can’t even withdraw more than $2,000 out of an ATM on a Sunday.

Well, what if instead they deployed your cash by loaning out assets like BTC, ETH or stablecoins like USDC to hedge funds and institutional investors at 10%.

Well, what if instead these banks generated 5-10% interest rates by lending out to hedge funds that want to invest in the next big opportunities. The hedge funds are willing to bet hey can make way more than 10%.

And to protect your money, they have to over-collateralize their loan. If they want to borrow 30K in USDC they have to give you a bitcoin that is worth 40K to hold to make sure they don’t run away with your money.

Your money is backed by the bitcoin they’re using as collateral AND you’re getting interest payments.

Think of it like a crypto pawn shop. If they don’t pay back the loan and the interest payments, you keep their bitcoin.

Then banks could take that 10% in interest payments and they could save money by not investing in physical branches and they could automate everything with code–getting rid of all corporate bloat and unnecessary employee salary and other expenses.

And imagine if they took all the money they saved by running a more efficient system, and gave all that extra money back to you.

That's how crypto yield is being generated today.

And even venture backed fintech companies are doing this with their treasury, just check out this blog post by Ramp.

Got more questions about yield and how this all works? Send em here and we'll answer them in an upcoming edition!

– Ben a.k.a. moonboy