Thank you for bringing to light an idea that has utility in the DeFi space!
I traded hybrid bank products for a living for many years and now that I am getting into cryptocurrency and learning as much as I can about DeFi, I can see a lot of potential in fixed income and hybrid products in this ecosystem. It's good to see others are interested too.
Late comment to his post, but just wanted to say this was a really cool idea, especially the debt vaults - would love to see this pave the way for more protocols borrowing against future revenue streams.
One quick note: Do you think deposit insurance might cause a fundamental issue with the comparison between capital structures in this post? As you've pointed out, all deposits at most of these banks are backed by the government, so governments get to dictate the amount of risk banks can take. However, IMO these risk numbers (even though they got a lot better post financial crisis stress-testing) don't really reflect a "market pricing" of risk taken on by banks when giving out credit; mostly just numbers that governments have decided reflect safety.
"For this reason depositors would prefer the largest equity buffer possible" -> the crux of my point is that this is actually very relevant in DeFi (especially post Terra) but pretty much irrelevant to retail bank depositors because of government deposit insurance. In my view, banks just prioritize the interests of equity-holders as much as permitted under current regulations (depositors care about things other than risk in my experience) -> If Maker is able to execute on this plan, it would be really interesting to see the kind of "buffer" that the market wants, and how Maker actually balances the interests of depositors and tokenholders. I'd predict that eventually, depositors might expect a higher buffer than is given by current retail banks (assuming the same level of risk on the lending side).
When you talk about straight token capital are you refering to MKR (an example) or this applies to any governance token that required this type of capital funding?
great stuff, as always. Question: Couldn't Maker operate with zero capital and just sell MKR when it needed to? Like an over-collateralized version of Terra?
Thank you for bringing to light an idea that has utility in the DeFi space!
I traded hybrid bank products for a living for many years and now that I am getting into cryptocurrency and learning as much as I can about DeFi, I can see a lot of potential in fixed income and hybrid products in this ecosystem. It's good to see others are interested too.
Late comment to his post, but just wanted to say this was a really cool idea, especially the debt vaults - would love to see this pave the way for more protocols borrowing against future revenue streams.
One quick note: Do you think deposit insurance might cause a fundamental issue with the comparison between capital structures in this post? As you've pointed out, all deposits at most of these banks are backed by the government, so governments get to dictate the amount of risk banks can take. However, IMO these risk numbers (even though they got a lot better post financial crisis stress-testing) don't really reflect a "market pricing" of risk taken on by banks when giving out credit; mostly just numbers that governments have decided reflect safety.
"For this reason depositors would prefer the largest equity buffer possible" -> the crux of my point is that this is actually very relevant in DeFi (especially post Terra) but pretty much irrelevant to retail bank depositors because of government deposit insurance. In my view, banks just prioritize the interests of equity-holders as much as permitted under current regulations (depositors care about things other than risk in my experience) -> If Maker is able to execute on this plan, it would be really interesting to see the kind of "buffer" that the market wants, and how Maker actually balances the interests of depositors and tokenholders. I'd predict that eventually, depositors might expect a higher buffer than is given by current retail banks (assuming the same level of risk on the lending side).
sir may i ask what software you use to create these "handdrawn" charts? thank you!
When you talk about straight token capital are you refering to MKR (an example) or this applies to any governance token that required this type of capital funding?
great stuff, as always. Question: Couldn't Maker operate with zero capital and just sell MKR when it needed to? Like an over-collateralized version of Terra?