Power of DeFi for noobs case study #1

Case study #1

If I’m sitting on a $100k gain, why the hell would I sell? I’d be liable for short-term capital gains taxes. That’s ~30%. That’s 30% of my profits, or $30k. And that’s not all. If that Ethereum is staked at 8% apy, that’s another $8000 gone on top of that, but because I’m rewarded in dividends (or More ETH) for staking, add another $1000.

What’s the solution? Easy, don’t sell. DeFi promises you never have to actually sell your crypto. If you want to spend, you borrow against it [preferably] with stablecoins. In the future, central banks will roll out their own stablecoin. From here, a borrower can shop for the best rate. If New Zealand’s central bank has a rate of 2%, I’ll borrow that over the UK’s 5%. And my staking is offsetting the borrowed interest by several points. Add in the fact my collateral (my crypto) is deflationary to begin with. This is an example of just one of the traditional margins (profits) banks get fat off of. I won’t get into lending in this post.

Legacy finance will serve the front-end of decentralized finance. And it’ll make the system much better because they’ll be forced to compete nationally and internationally in a way they haven’t yet. They’ll also have to incentivize crypto users. I believe they will. If they don’t, the coming atomic swaps with privacy coins (I’m looking at you Monero) will wreck havoc on taxes, or those cities/states/countries that set up crypto infrastructure and incentives, will be much like the people who bought Bitcoin at 50¢—market making whales.

Traditional banking is going to be eaten. Their profits will be yours. This is the promise of DeFi, a system that’s already a teen even though it was born a couple years ago.