The Bull Case for DeFi: Matthew Roszak

Also: Capital treadmills, yield and ETH at a lifetime high.

February 18, 2021 The top stories in bitcoin, crypto and more – all in one place, delivered daily. Sponsored By: By Daniel Kuhn If you were forwarded this newsletter and would like to receive it, sign up here.  Sound bites Matthew Roszak thinks the financial primitives being built in the decentralized finance market have one key draw: yield. While these "money legos" could be difficult to use, and come with risks, the real spreads involved could attract investors.   Watch his full "First Mover" interview here, and catch it live every weekday at 9 a.m. ET. Top shelf Data dot: Are banks playing with small-cap crypto? Goldman Sachs, ICAP, JPMorgan and UBS have invested in a financial product that tracks Polkadot's cryptocurrency, DOT, the fifth-largest digital asset by market cap. These banks and brokerages purchased small amounts of shares in Switzerland-based 21Shares' exchange-traded product, according to Bloomberg data. Major institutions have a growing appetite for bitcoin (BTC) and ether (ETH), which may also be extending into lower-capped coins as the market rally continues. Maybe they claimed their POOL airdrop? Bull and bear case for ETH Ether continues to set new lifetime highs as it charts a course to $2,000. CoinDesk markets reporter Omkar Godbole looks at signs the cryptocurrency may be overleveraged in the derivatives market and heading towards a patch of volatility. That said, other indicators show ETH could continue to climb – coins are leaving exchanges and the number of active addresses is increasing. Mining mania Nasdaq-listed Ebang will start mining bitcoins using its own machines and competing brands. There's something of a tried and true method for mining manufacturers to turn on their own rigs or invest in mining pools, though these operations often run into problems during market downturns. In one sign of mining mania reminiscent of the 2017 bitcoin bubble, a Hunan, China-based tea retailer announced a "critical strategic expansion" into crypto mining. Withdrawals and depositions Robinhood will enable crypto withdrawals and deposits, a turn from the perma-custodial model seen in fintechs like PayPal. The intent was announced via tweet, but no indication was given as to when coins (like DOGE) can leave the brokerage. Robinhood will be center stage on Capitol Hill today, as a number of key figures in the GameStop saga testify before a committee of the U.S. Congress. Web 3.0 infrastructure laid out A decentralized version of GitHub brought in $12 million from lauded investors including Placeholder, Electric Capital and ParaFi Capital; Naval Ravikant, Balaji Srinivasan and Meltem Demirors. Radicle, the code depository, will make it easier for devs to collaborate on open source software and funding raising initiatives. Meanwhile, The Graph extends support to Polkadot, Solana, NEAR and Celo.   What to watch for: First bitcoin exchange-traded fund in North America launches today U.S. House of Representatives committee will hear Robinhood CEO Vlad Tenev, Reddit CEO Steve Huffman and WallStreetBets legend Roaring Kitty testify about the GameStop saga Weekly initial jobless claims data: increased to 861,000 SPONSORED BY NEXO Your digital assets deserve a savings account in their BEST INTEREST. Leading crypto lender Nexo treats you, your crypto and your fiat to industry-best Crypto & Fiat services, featuring:    * Up to 12% interest on digital assets, paid out daily! * Yields available on BTC, ETH, LTC, BCH, XRP, XLM, EOS, TRX, LINK, BNB, PAXG, USDT, USDC, TUSD, PAX, DAI, HUSD, GBP and EUR. * No minimum or maximum limits on funds deposited, offering infinite opportunities to earn. * Full flexibility with no lock-in periods, so you can withdraw your funds anytime. * #ZeroFees on all transactions. * Military-grade wallet security and top-tier insurance on all custodial assets with SOC 2 Type 2 certified crypto custodian BitGo. Get started at nexo.io. At stake Yield bugs "People are building treadmills for capital," billionaire venture capitalist Matthew Roszak said on CoinDesk TV this morning. The founder of Bloq, a blockchain enterprise software company, predicts the growing world of decentralized finance (DeFi), currently valued at $40 billion, could "add another zero in a year from today."   "The innovation cycle in DeFi is happening in real time," Roszak said. Most notably is the yield opportunities presented across the DeFi stack. While institutions haven't yet plowed funds into "yield farms," typically named after foods like Yams, Pickles or Sushi, there is a "macro need" for returns on capital. Right now that value is accruing to early adopters.   But what would it take for legacy institutions to take a jog on the DeFi capital treadmill? A comparable level of risk might be found in corporate junk bonds. Given the historically low rates on U.S. Treasury bonds and typically safer investments, traders are putting funds in higher risk, higher reward junk bonds. In fact, the demand for this debt has actually pushed junk bond yields to historic lows. (Bond prices and yields are inversely correlated, as demand pushes a bond's price up, yields fall.)   The measure for the Bloomberg Barclays U.S. Corporate High-Yield index dipped to 3.96% in early February. MarketAxess Holdings President and Chief Operating Officer Chris Concannon said yesterday on Bloomberg that electronic high-yield bond trading is booming. In essence it just comes down to what opportunities are available.   Right now, many institutions are probably aware of the opportunities present in DeFi – the U.S. Federal Reserve has certainly taken note – but may be hesitant to jump into a sector known that is still working out its kinks.   Roszak noted there's technology risk – in terms of bugs, of which there have been many – as well as adoption risk – related to who is joining the market and user experience issues. But the new capital markets are real and they're here to stay. "As the lens the market starts to look through is going to get more and more refined as best practices on how to score risk start to get unpacked," Roszak said.   As Jeremy Allaire, CEO of Circle, one of the members of the CENTRE Consortium that issues a key DeFi stablecoin, USDC, put it: "People are starting to realize how profound this new infrastructure for the internet is." No consensus? Public figures and governments are still figuring out this decentralization thing. Bill Gates has a "neutral view" on bitcoin, but supports digitizing money. Goldbug Jeffrey Gundlach thinks the orange coin could be a better bet than the yellow metal. Zug, Switzerland, has started accepting tax payments in cryptocurrency, partnering with Bitcoin Suisse. Russia wants its digital ruble CBDC to be bank friendly. The nation is still putting pressure on public crypto assets. Introducing "All About Bitcoin," a show about all things – surprise – bitcoin From the world leader in crypto news and events, the all-new CoinDesk TV covers the rapidly evolving world of digital finance and its role in the global economy.   "All About Bitcoin," a new daily show, is dedicated to all things, questions and markets related to bitcoin and Bitcoin – and the collective discovery in understanding, applying and using this innovation. All bitcoin, all the time.   Watch "All About Bitcoin" weekdays at 3 p.m. ET on YouTube or CoinDesk.com. Quick bites A compilation of bullish bitcoin cases. (Blockworks) We are all DOGE now? (CoinDesk Opinion) Historic N.J. estate on sale for bitcoin. (NY Post) Christie's Auction House is accepting ETH for the Beeple listing. (Bloomberg) Cosmos upgrades to Stargate (CoinDesk), plus a deeper dive on what that means here. Who won Crypto Twitter? 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