Crypto Grew Up and Most Investors Didn't Notice

Meet Bob.

Bob holds Ethereum.

He wants to stake his Ethereum on Coinbase, a process where he locks up his Ethereum and in return Coinbase pays him yield.

But Bob doesn't like the idea of locking up his Ethereum. If there's a market crash, he doesn't want to be stuck holding something he can't sell.

So Bob doesn't use Coinbase, he instead takes his Ethereum to a company called Lido.

At Lido, he hands them his Ethereum, Lido stakes it for him like Coinbase would have, but instead Lido gives him a receipt of his staked Ethereum.

It's a win win, because Bob can earn yield on his asset without it being locked up.

But Bob's not finished there.

He wants to earn even more money.

So he goes to a company called Kelp and he hands them his receipt.

Kelp goes to bootleg companies who don't have Ethereum themselves. Kelp hands these companies Bob's receipt to help secure their networks.

In return, Kelp gives Bob yet another receipt and pay him yield.

Bob is now earning yield from Lido and Kelp at the same time.

But Bob isn't finished there.

He wants to make even more money (greedy, I know).

So he takes his new receipt from Kelp and goes to Aave, crypto's largest money market platform where people can borrow and lend money.

He uses his receipt as collateral to borrow Ethereum.

Bob now takes that borrowed Ethereum, takes it back to Kelp. Kelp hands Bob another receipt and pays him yield on the Ethereum he brought them.

Bob then goes back to Aave, uses this new receipt as collateral to borrow even more Ethereum.

Then the process repeats, until Aave won't hand Bob any more Ethereum.

What Could Wrong, Right?

 Last weekend, Kelp lost $300M of funds from a hack.

So what happens when this money disapears?

When Bob goes back to Kelp with his receipt, asking for his money, Kelp can't pay Bob.

The companies being backed by Kelp are in trouble too, but their staked assets aren't worth what everyone thought they were. So those companies look shaky, and collapse.

Bob is wiped out, and so are thousands of others doing the same thing as Bob.

Aave just lent money to Bob they can't get back; their losses are now bigger than the entire emergency fund they have allocated for situations like this.

Regular depositors who are trying to earn a safe yield start losing money too.

And what's crazy, is that regular folks would be earning more yield just parking it in treasuries than they would parking it in crypto.

But Here's the Opportunity

When people have invested in crypto in the past, they've essentially been betting on alternative finance; building a new financial system, Bitcoin as a store of value, DeFi etc...

It's no wonder most people lost money in crypto over the last 10-years, because they were betting on something that was never going to materialize.

But today is the first time in crypto's history that if you're investing today you're betting on efficient finance; taking the current financial system and making it better.

All this DeFi nonsense has no place in where this space is moving in the next five years.

Right now, the NYSE is developing a platform to bring stocks onto blockchains to trade 24/7, financial institutions are starting to settle bonds and money market instruments on blockchains, and banks are now experimenting with using stablecoins as deposits.

This is a massive stray away from crypto's wild west past.

No one in the media is covering this major transition.

With new IPOs and cryptos operating at this new frontier of tokenization, that's where the next major investment opportunities are forming in this space.

Now, Totally Unrelated...

I just moved to my new place and it's right on the ocean in New Zealand.

I figure it's a wasted opportunity to not get in the water. So as pictured below, I got myself a wetsuit and some snorkeling goggles, lol.

Any words of wisdom from those with more experience in the water would be appreciated! I'm a total newbie at this.

My friends tell me there are a lot of Bronze Whaler sharks in this part of the country.

Yikes!

Cheers,

Louis Sykes
Senior Crypto Analyst, All Star Charts