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Protocol-backed investment accounts are a paradigm shift

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Photo by Michael Longmire on Unsplash

Blockchain’s version of retail investment accounts can improve yields, remove the middleman, and enable public services.

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The coming to market of “challenger banks” like N26 and Revolut, modern savings products like Goldman’s Marcus, and finance apps like M1Finance, suggests that personal finance is repositioning as generationally minded mobile applications and web apps. But blockchain’s decentralized finance version of banking and investments is not merely the next iteration of tech challengers, it is a paradigm shift.

In the near future, many interactions with blockchains will simply look like an investment account to the end user.

In the near future, many interactions with blockchains will simply look like an investment account to the end user. Activities like providing security to a public blockchain or liquidity to a financial protocol will be available in “investment account format” — just deposit any amount of dough, take some risk, and earn a return. The innovative part of this scheme is that depositing capital into the supply side of decentralized protocols is crucial for their successful operation. Just imagine if every American deposited $100 into an account for Ethereum 2.0 staking — Ethereum would have the power of an extra $32.7 billion (~1.5x current market cap) in network security, and the user can earn up to 10.3% in Ether-denominated return.

With products like M1 Finance, Millennials can borrow money from their mobile apps today.

Though currently more risky, could protocols begin to stand in for traditional investment accounts over time? This past year, the market’s highest yielding savings account by Wealthfront clocked in at 2.53% APR, accepted investments as lows a $1, and lowered costs through technological automation. Similar products from Goldman Sachs, Ally, and others are popular in the market, with customers focused on higher rates of return and Millennials under increased pressure to save 40% of their paycheck. At the same time, Charles Schwab, TD Ameritrade, and other brokerages have found themselves cutting trading fees to 0 as customers in a digital world now value transaction facilitation less than advice and other services.

Imagine if every American deposited $100 into an account for Ethereum 2.0 staking — Ethereum would have the power of an extra $32.7 billion in network security, and the user can earn up to 10.3% in Ether-denominated return.

Given how quickly tech products are penetrating personal finance, traditional savings accounts seem woefully out of date. In traditional savings, the customer makes a deposit into the fractional-reserve banking system. A bank takes the capital and uses it to make proprietary investments — notably, lending — which produce a rate of return. A small fraction of the return is shared with the customer. Drawbacks of this system include that customers can neither practically opt out of fractional-reserve banking, nor mitigate the counterparty risk of the bank without invoking expensive federal regulation and insurance. Returns for customers are dictated by providers, diluted by the need for shareholder profits, and don’t go far enough to counteract the consumer’s exposure to inflation. All in all, the scope, function, and performance of the traditional savings account leaves much to be desired in our modern context.

Comparison of traditional savings, traditional brokerage, and protocol-backed investment accounts.

In the protocol-backed investment account model, the customer makes a deposit into a set of public protocols whose economies provide a rate of return. In doing so, the customer can trades off the counterparty risk of an intermediary for the technical risks of interacting with protocols. Over time, these latter risks are mitigated by engineering as is routinely done with software. In some cases, like lending stablecoins, its possible to guarantee a nonnegative fiat return in exchange for the risks of that asset’s stability mechanism.

By going to protocols, customers remove the profit-seeking intermediary, and gross returns incur only the network transaction fees of interacting with blockchains. Because these deposits amount to a supply-side activity for a public network, protocol-backed accounts become both a form of ownership and governance in public goods and services. In the future, shifting the protocol allocation of an investment account may be a form of registering preferences, or voting, on public services.

In the future, shifting the protocol allocation of an investment account may be a form of registering preferences, or voting, on public services.

Participating in decentralized protocols through an investment account foreshadows how the simple, traditional concept of an account at an institution will eventually be completely rehabilitated. It will increase an individual’s financial self-sovereignty, improve consumer choice, and remove the middleman — all while helping to serve up useful public services like blockchains, domain registration, cloud storage, and even universal basic income systems down the line.

DeFi wallet products, empowered with breakthrough interoperability technologies like WalletConnect, are available for download today. You invest your digital assets in a decentralized lending protocol right now. In 2020, we should expect to see a lot more options and tools for interacting with protocol-backed investment accounts, while traditional products are likely to continue puttering along.


Protocol-backed investment accounts are a paradigm shift was originally published in The CoinFund Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Source: https://blog.coinfund.io/protocol-backed-investment-accounts-are-a-paradigm-shift-e0d97794e8e9?source=rss—-f5f136d48fc3—4

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Blockchain and crypto will challenge current finance, Nigeria VP says

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Nigeria’s vice president, Yemi Osinbajo, delivered a speech at an economic summit on Friday in which he spoke positively of crypto and blockchain. 

“There is no question that blockchain technology generally, and cryptocurrencies in particular, will in the coming years, challenge traditional banking, including reserve banking, in ways that we cannot yet imagine,” Osinbajo said on Friday during the Central Bank of Nigeria, or CBN, Bankers’ Committee Economic Summit. “We need to be prepared for that seismic shift, and it may come sooner than later,” he said.

The Nigerian vice president also noted the broadness of the crypto industry, mentioning decentralized finance, or DeFi, in the mix. “Decentralized finance, using smart contracts to create financial instruments, in place of central financial intermediaries, such as banks or brokerages, is set to challenge traditional finance,” he said. 

Osinbajo’s speech, which included a number of other points, is posted on his YouTube channel. The Nigerian vice president also tweeted out a video clip highlighting of some of his crypto comments from his talk.

“The point I’m making, is that some of the exciting developments we see call for prudence and care in adopting them and these have been very well-articulated by our regulatory authorities,” he said, adding:

“But we must act with knowledge and not with fear. We must ensure that we are in a position to benefit and in a position to prevent any of the adverse side effects, or any of the possible, even criminal, acts that may arise in consequence of adopting or taking any of these options.”

The comments come in contrast to recent developments in Nigeria. Earlier in February, Nigeria forbade banking interactions with crypto exchanges, as per a ruling from its central bank. The CBN’s governor also called crypto assets illegitimate. Bitcoin recently traded at a significant premium in the region.

Source: https://cointelegraph.com/news/blockchain-and-crypto-will-challenge-current-finance-nigeria-vp-says

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‘Bitcoin could reach $1 million or $1, and may do both of those’

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While many analysts predict that either Bitcoin could increase to a million or fall to a dollar, a popular businessman and investor based in the US thinks that the asset could do both!

In a recent interview with Joe Kernen at CNBC’s Squawk Box, Internet analyst Henry Blodget of the dot com era fame said: 

Bitcoin could go to $1 million… it could also go to $1. And in fact it may do both of those

In addition, Blodget, who also served as the head of the global Internet research team at Merrill Lynch, is unconvinced about the asset’s value proposition. He claimed that Bitcoin as an inflationary hedge and the narrative surrounding its value as ‘digital gold’ were “stories”. He further added: 

But the stories that we tell about why relative to the value of gold or other currencies, they’re ludicrous.

In his opinion, Bitcoin can trade just about anywhere because it does not have any fundamental backing. He said that unlike traditional stocks, “which usually does have some relationship ultimately to a fundamental,” of a company, “Bitcoin doesn’t, so that means it can trade anywhere.”

The entrepreneur thinks that crypto exchange Gemini’s CEO Tyler Winklevoss could eventually be “exactly right,” in his forecast that the asset could surge to a million. However, Blodget said:

If people were to decide that for the next couple of hundred years Bitcoin is where you park your money when you take it out of the fiat system, OK, it’s possible.

Interestingly, while crypto Twitter and Bitcoin enthusiasts, in particular, called out the analyst’s criticism, they commended the interviewer’s counter-argument. CNBC’s Joe Kernen seemed to even “speak the language” of the crypto space as one twitter user named @HodlBells noted:  


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Source: https://ambcrypto.com/bitcoin-could-reach-1-million-or-1-and-may-do-both-of-those

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Crypto platform NetCents to offer users access to DeFi protocols thru Vesto

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NetCents, a cryptocurrency payments company, today announced it has signed an agreement with Vesto.io to pave the way for DeFi access in the NetCents platform.

Vesto, is a San Francisco-based company that has created a platform allowing users to choose from multiple DeFi protocols in a virtual supermarket. NetCents (with regulatory approval) intends on enabling a portal to the Vesto infrastructure from the NetCents wallet in order to facilitate user’s adoption of DeFi investing in an efficient and easy-to-understand interface.

“We have seen the DeFi space explode over the past year, but for it to reach the next level – the tools and the process has to be attainable by the novice crypto investor. We will be adding a layer of simplification to the process so that individuals can have their savings actually working for them without the complexity of the current platforms. Individuals have the right to lend their money at market-based rates instead of getting 1% interest on their savings that the commercial banks are offering.”
– Clayton Moore, NetCents Founder & CEO

LOI

The Letter of Intent  (LOI) contemplates a Joint Venture between parties and an option for NetCents to invest in Vesto and hold a significant ownership stake in the company at a future date.

Management of NetCents also informed investors that many of the concepts embraced by these DeFi platforms have not been vetted by the many authorities that regulate financial products. NetCents intends to work together with regulators to navigate this landscape and resolve it with a compliant product.

For Example: Fintech businesses seeking to bring a novel product or service to the market can seek regulatory relief through regulatory sandboxes such as the Ontario Securities Commission’s LaunchPad or the British Columbia Securities Commission’s SandBox.

Furthermore, businesses that distribute, trade, or advise in crypto assets that are securities are required to comply with securities laws (in particular, registration and prospectus requirements), which can be onerous. There are many exemptions for specific types of distributions, trades, and other activities and NetCents intends to research these exemptions rigorously. These exemptions, at a high level, may limit the types of investors that can participate or the investment amounts, or may require the preparation of disclosures to investors and filing of a disclosure document.

Source: https://www.cryptoninjas.net/2021/02/27/crypto-platform-netcents-to-offer-users-access-to-defi-protocols-thru-vesto/

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