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High-yield crypto ecosystem offers an alternative to low interest rates

People flock to high-yielding crypto environments because the interest rates on traditional investments remain low in comparison. Almost a year has passed since the “DeFi Summer”, but the optionality has only increased, as has the amount of “Money Legos” that are combined in different ways.

At Consensus 2021, Felix Fen, Co-Founder and CEO of Set Protocol; Zac Prince, CEO of BlockFi; and Stani Kulechov, CEO of Aave, came together to discuss how, and what trade-offs, people seeking higher returns on their crypto assets can access a variety of services.

Overall, there was consensus that given the current low interest rates in traditional finance (0.25% in the US, their lowest level in history), people generally use crypto, not just as a hedge against inflation, but because of it of the high returns that they offer.

Translate crypto with interest rates

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Prince said he saw real value in using interest rates to translate something really powerful that is happening in the crypto ecosystem into the terms everyone is already familiar with.

“If you’re trying to explain to people on their journey into the crypto ecosystem how the blockchain works, or why Bitcoin has value, or some of the other more complex and weeded topics, they might have trouble packing their heads around, ”he said. “Everyone knows what an interest rate is. And everyone knows that earning 8.6% for something is better than earning 0.2%. “

However, banks are still a long way from properly financing the crypto ecosystem. From his point of view at the forefront of trying to incorporate crypto into traditional funding channels, he said, “We’re not a day or two away.”

Kuechov talked about how the Aave community regulates the parameters of interest rates, which are then determined by supply and demand. This transparency is attractive to people, as is Aave’s decentralized model, which means that no company can arbitrarily change these rates.

The story goes on

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“The fact that anyone can participate in influencing interest rates in these markets is a very big deal, as traditionally large interest rate movements have been decided by the banking industry; for example by a couple of people sitting down with a room in London, ”said Kulechov.

Examine the variables

As an asset manager, Fen emphasized that the floating rate is actually variable in nature. He pointed out that regardless of what platform people are using, it’s important to consider this associated risk as well. For example, he suggested that users evaluate the log’s risk of bankruptcy and take this into account when considering where to allocate funds. For him, a large part of that decision-making should involve evaluating the community.

“How stable is a parameter selection, how conservative or aggressive is a community in its parameter selection and how decentralized is the protocol overall?” He said. “I think these are some of the elements that we consider when we think about the rate of return, and therefore not all interest rates should be taken as headlines. You have to look a little deeper. “

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