Worldwide Yield Famines

tl;dr: With global fiat money printing at all time high, yields on treasury bonds will be low (or negative). The hunt for yield. The crypto green fields

I’m not a sophisticated international money manager so I may be out of my depth here, but my general understanding of what happens in markets as interest rate yields go lower is this:

More and more people are willing to take on more and more risk in order to increase the return on their assets. Hence the ongoing massive ebbs and flows of investment into “emerging markets” over the last 30 years. So, for example, when money managers want yield, they invest in places like Argentina, Greece, and Turkey, whose governments load up on (relatively) cheap debt.

Then, when people’s appetite for risk wanes, the money flows out and these countries have debt crises. Meanwhile the money goes off to other places or return to “safe” assets like US Treasuries.

The Crypto Yield Alternative

Unlike in the past, however, today there’s a way to generate yield outside of emerging markets and with slightly higher guarantees.

That is the emerging world of Decentralized Finance (DeFi), which is essentially “Crypto Wall Street,” an entirely new model for banking.

As of this writing, for example, one could take their synthetic US Dollars (generated from Synthetix through the deposit of collateral) and deposit them into Curve.fi to generate a 12.45% apy on their cash.

If you look at the “Yield Farming” tab of Coin Market Cap, you’ll see there are some really appealing interest rates out there, which reflect additional risk, but also the lower cost associated with generating productivity from assets given the fact they are digital. Plus, the fact that the smart contracts are verifiable means that the trust in the system is higher than say the Greek government’s accounting.

Now, I’m not saying these opportunities are risk-free or perfect. The tech is still relatively new and the smart contracts are potentially vulnerable (which is why crypto insurance- aka Nexus Mutual is necessary).

But I am saying that I think the appeal of yields of this nature will only increase for people looking at the cash in their portfolios and trying to figure out what to do with it so that the value isn’t evaporated away by inflation.

Yield Migration

I suppose what is happening is akin to the migration of people only this time, instead of migrating cash from the US to Greece/Argentina, it’s the migration of cash from the analog banking system to the digital banking system.

What starts as a trickle will become a flow, particularly as the money printing presses pick up steam in the first half of this year.

When all is said and done, and it will take a while, the global financial system of today will be unrecognizable to the participants of the global financial system of tomorrrow.