Crypto lending markets are adapting to fill the gaps left by failed centralized platforms.
Key Takeaways
- Lending markets in crypto are uniquely sustainable due to their distinct value proposition that can’t be replicated outside of crypto.
- There is a significant downward trend in the total value locked in crypto lending markets.
- Capital formation in crypto is considered an evergreen business model, unlike other cyclical DeFi activities.
- The demand for turning nonproductive assets into productive ones makes lending a durable business in crypto.
- DeFi lending platforms have filled the void left by the decline of centralized platforms like Celsius and BlockFi.
- Understanding risks in on-chain lending platforms requires significant expertise, posing a barrier for users.
- The integration of Morfo with Coinbase has led to substantial growth in collateralized borrowing against Bitcoin.
- The concept of looping allows for recycling capital to increase yield through leveraged borrowing.
- The lack of traceability in leveraged systems poses significant risks in the crypto lending market.
- Cross depositing vaults is a dangerous strategy due to the concentration of risk.
- Composability in crypto leads to composable risk, where one asset’s failure can have widespread implications.
- The availability of stablecoins is the most critical metric for lending in crypto.
Guest intro
Wyatt Khosrowshahi is an Investor at Castle Island Ventures. Prior to joining in July 2023, he served as an Investment Analyst at Shima Capital, focusing on companies leveraging blockchain to improve web2 industries. He recently co-authored the “Total Value Lost” report assessing the value of DeFi markets, starting with lending protocols.
Why lending markets are sustainable in crypto
- Lending markets in crypto serve a unique value proposition that cannot be replicated outside of crypto.
-
— Wyatt
- The current state of lending markets shows a significant downward trend in total value locked.
-
— Wyatt
- Capital formation in crypto is an evergreen business model, contrasting with the cyclical nature of other DeFi activities.
-
— Wyatt
- Lending is a durable business in crypto due to the constant demand for turning nonproductive assets into productive ones.
-
— Wyatt
The impact of centralized platform failures on DeFi lending
- The decline of platforms like Celsius and BlockFi has created a void that DeFi lending platforms have filled.
-
— Wyatt
- DeFi platforms have benefited from the mistrust resulting from centralized platform failures.
- Understanding risks in on-chain lending platforms requires significant expertise, which can be a barrier for users.
-
— Wyatt
- The rise of DeFi lending is connected to the failures of centralized platforms, providing a clear explanation of market dynamics.
Growth in collateralized borrowing and the concept of looping
- The integration of Morfo with Coinbase has led to significant growth in collateralized borrowing against Bitcoin.
-
— Wyatt
- The concept of looping allows for recycling capital to significantly increase yield through leveraged borrowing.
-
— Wyatt
- The lack of traceability in leveraged systems poses significant risks in the crypto lending market.
-
— Wyatt
Risks and strategies in crypto lending
- The strategy of cross depositing vaults is extremely dangerous due to the concentration of risk.
-
— Wyatt
- Current lending strategies in crypto are not durable and should not be seen as a bet on lending markets.
-
— Wyatt
- Composability in crypto leads to composable risk, where the failure of one asset can have widespread implications.
-
— Wyatt
Market events and their impact on crypto
- The risk profile of perpetual exchanges significantly influenced their conservative approach leading up to the 10/10 washout.
-
— Wyatt
- The poor liquidation of USDE on Binance was a direct cause of the 10/10 event.
-
— Wyatt
- The pain felt in the market was exacerbated by the thin order book depth of many assets.
-
— Wyatt
Valuation challenges in the crypto market
- Many crypto assets may not be worth their claimed market cap due to low trading volumes.
-
— Wyatt
- The lack of a fundamental floor for many crypto assets creates significant uncertainty.
-
— Wyatt
- Funds can inflate their net asset value (NAV) to charge fees on unrealized gains, which can mislead investors.
-
— Wyatt
The importance of stablecoins and revenue in crypto
- The availability of stablecoins is the most critical metric for lending in crypto.
-
— Wyatt
- Most crypto platforms do not generate revenue that justifies their token valuations.
-
— Wyatt
- Revenue is sought after in crypto for buybacks and to build trust in teams.
-
— Wyatt
Venture capital and investment strategies in crypto
- Venture capitalists are paying high premiums for talent in the current market.
-
— Wyatt
- The lending markets may be underpriced, but this is not a universal truth and requires a long-term investment horizon.
-
— Wyatt
- Investors may be overpaying for assets now or in the future, depending on their investment horizon.
-
— Wyatt
The macroeconomic influence on crypto markets
- Crypto is highly sensitive to interest rates and operates as a macro trade.
-
— Wyatt
- The last real bull market in crypto occurred during a zero interest rate environment.
-
— Wyatt
- Crypto thrives under problematic monetary policies, which paradoxically leads to underperformance when policies become more responsible.
-
— Wyatt
Resilience and future of lending markets
- Lending markets can thrive in both high and low interest rate environments due to the dynamics of borrowing costs and market volume.
-
— Wyatt
- As interest rates decrease, the volume of borrowing in lending markets is expected to increase due to more viable strategies becoming available.
-
— Wyatt
Crypto lending markets are adapting to fill the gaps left by failed centralized platforms.
Key Takeaways
- Lending markets in crypto are uniquely sustainable due to their distinct value proposition that can’t be replicated outside of crypto.
- There is a significant downward trend in the total value locked in crypto lending markets.
- Capital formation in crypto is considered an evergreen business model, unlike other cyclical DeFi activities.
- The demand for turning nonproductive assets into productive ones makes lending a durable business in crypto.
- DeFi lending platforms have filled the void left by the decline of centralized platforms like Celsius and BlockFi.
- Understanding risks in on-chain lending platforms requires significant expertise, posing a barrier for users.
- The integration of Morfo with Coinbase has led to substantial growth in collateralized borrowing against Bitcoin.
- The concept of looping allows for recycling capital to increase yield through leveraged borrowing.
- The lack of traceability in leveraged systems poses significant risks in the crypto lending market.
- Cross depositing vaults is a dangerous strategy due to the concentration of risk.
- Composability in crypto leads to composable risk, where one asset’s failure can have widespread implications.
- The availability of stablecoins is the most critical metric for lending in crypto.
Guest intro
Wyatt Khosrowshahi is an Investor at Castle Island Ventures. Prior to joining in July 2023, he served as an Investment Analyst at Shima Capital, focusing on companies leveraging blockchain to improve web2 industries. He recently co-authored the “Total Value Lost” report assessing the value of DeFi markets, starting with lending protocols.
Why lending markets are sustainable in crypto
- Lending markets in crypto serve a unique value proposition that cannot be replicated outside of crypto.
-
— Wyatt
- The current state of lending markets shows a significant downward trend in total value locked.
-
— Wyatt
- Capital formation in crypto is an evergreen business model, contrasting with the cyclical nature of other DeFi activities.
-
— Wyatt
- Lending is a durable business in crypto due to the constant demand for turning nonproductive assets into productive ones.
-
— Wyatt
The impact of centralized platform failures on DeFi lending
- The decline of platforms like Celsius and BlockFi has created a void that DeFi lending platforms have filled.
-
— Wyatt
- DeFi platforms have benefited from the mistrust resulting from centralized platform failures.
- Understanding risks in on-chain lending platforms requires significant expertise, which can be a barrier for users.
-
— Wyatt
- The rise of DeFi lending is connected to the failures of centralized platforms, providing a clear explanation of market dynamics.
Growth in collateralized borrowing and the concept of looping
- The integration of Morfo with Coinbase has led to significant growth in collateralized borrowing against Bitcoin.
-
— Wyatt
- The concept of looping allows for recycling capital to significantly increase yield through leveraged borrowing.
-
— Wyatt
- The lack of traceability in leveraged systems poses significant risks in the crypto lending market.
-
— Wyatt
Risks and strategies in crypto lending
- The strategy of cross depositing vaults is extremely dangerous due to the concentration of risk.
-
— Wyatt
- Current lending strategies in crypto are not durable and should not be seen as a bet on lending markets.
-
— Wyatt
- Composability in crypto leads to composable risk, where the failure of one asset can have widespread implications.
-
— Wyatt
Market events and their impact on crypto
- The risk profile of perpetual exchanges significantly influenced their conservative approach leading up to the 10/10 washout.
-
— Wyatt
- The poor liquidation of USDE on Binance was a direct cause of the 10/10 event.
-
— Wyatt
- The pain felt in the market was exacerbated by the thin order book depth of many assets.
-
— Wyatt
Valuation challenges in the crypto market
- Many crypto assets may not be worth their claimed market cap due to low trading volumes.
-
— Wyatt
- The lack of a fundamental floor for many crypto assets creates significant uncertainty.
-
— Wyatt
- Funds can inflate their net asset value (NAV) to charge fees on unrealized gains, which can mislead investors.
-
— Wyatt
The importance of stablecoins and revenue in crypto
- The availability of stablecoins is the most critical metric for lending in crypto.
-
— Wyatt
- Most crypto platforms do not generate revenue that justifies their token valuations.
-
— Wyatt
- Revenue is sought after in crypto for buybacks and to build trust in teams.
-
— Wyatt
Venture capital and investment strategies in crypto
- Venture capitalists are paying high premiums for talent in the current market.
-
— Wyatt
- The lending markets may be underpriced, but this is not a universal truth and requires a long-term investment horizon.
-
— Wyatt
- Investors may be overpaying for assets now or in the future, depending on their investment horizon.
-
— Wyatt
The macroeconomic influence on crypto markets
- Crypto is highly sensitive to interest rates and operates as a macro trade.
-
— Wyatt
- The last real bull market in crypto occurred during a zero interest rate environment.
-
— Wyatt
- Crypto thrives under problematic monetary policies, which paradoxically leads to underperformance when policies become more responsible.
-
— Wyatt
Resilience and future of lending markets
- Lending markets can thrive in both high and low interest rate environments due to the dynamics of borrowing costs and market volume.
-
— Wyatt
- As interest rates decrease, the volume of borrowing in lending markets is expected to increase due to more viable strategies becoming available.
-
— Wyatt
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Source: https://cryptobriefing.com/wyatt-crypto-lending-markets-are-uniquely-sustainable-the-decline-of-centralized-platforms-fuels-defi-growth-and-the-importance-of-stablecoins-in-lending-on-the-brink-with-castle-island/
