borrow

provide collateral

"yield aggregator:" push capital where rate of return is highest

Traditional Market 
two-sided with fixed roles

• consumers $\leftrightarrow$ producers
• consumers $\leftrightarrow$ intermediaries $\leftrightarrow$ producers

Decentralized Market?
value management protocol $\not=$ market

• blockchain $=$ application execution $=$ intermediary
• blockchain-native $\Rightarrow$ requires platform thinking
• consumers $=$ producers

liquidity $\nearrow$

volume $\nearrow$

protocol fees $\nearrow$

token value $\nearrow$

it works!

Idea:

• strategy to systematically take advantage of token issuance (liquidity mining) programs
• like pooling funds to take advantage of banks deposit incentives

• liquidity flees quickly
• "mirage" effect: yield aggregators borrow what they deposit

don't own the code

operation = decentral

control = decentral

anyone can use the baseline code

tokens used as rewards

payments:

• you use them strictly to pay for something
• example: native cryptocurrencies
  
  
   

utility

• you use them to access a specific service of function
• example: filecoin
  
  
   

stablecoins

• digital representation of fiat money
• centralized/ decentralized
• examples: DAI, USDC, USDT
   

governance

• voting rights to determine parameters of a project
• example: UNI, Compound etc
  
   

asset

• representation of ownership
• pool claims, digital items
• example: receipts from UniSwap, Compound, NFTs

derivatives

• tokens based on other tokens & functions
• Example: tokensets
  
  
   

BIS Survey of Central Banks:

DeFi fees:

• fiat to crypto on ramp: 0%-1%
• exchange fees 1-5bps
• network fee: $0.001-5$
• off-ramp fee: 0%-1%
• total: from close to 0 to 2%+$5

Source: Etherscan w re-scaling

criminals don't use USDC - why are we so worried?

extra info:

• 2019:  PlusToken Ponzi scheme 
• numbers depend on known addresses, e.g., 2021 report listed ~.3% for 2020 and upped to .65 now

issuers

investors

• funding
• record-keeping
• instruments

• custody
• advice
• trading

• takes care of custody and allows self-custody
• allows instrument creation
• enables record-keeping
• allows circumvention of existing institutions

A general purpose value management infrastructure:

separate institutions

• asset custodians
• broker-dealers
• trading platforms

The blockchain reality:
new institutions
emerged that do all three

• subtle changes in rules to make holding and using crypto illegal/impossible
• regulation by enforcement actions
• "almost all crypto-assets are securities"
• rushes to pre-empt Congress

MiCA

• whitepaper rule
• platforms as money services businesses

"What's the big deal $\to$ just download a form from our website and register!"

So what's the problem here?

But this has happened before!

When alternative trading systems emerged in the late 1990s, they were illegal exchanges under securities law because they were not broker-owned!

The S.E.C. approached the problem with no action letters and eventual changes in outdated rules