Hello defiers! Here’s what’s going on in decentralized finance,
NBA player issued tokenized bond; would DeFi be better for this?
Bancor’s BNT holders earn ~$3k in trading fees from ETHBNT pool after airdrop
Zero Collateral updates protocol to push interest rates lower
and more :)
The Next Celebrity Bond Should be Truly Decentralized
Brooklyn Nets guard Spencer Dinwiddie is selling a tokenized bond linked to his NBA contract. That way, he gets $13.5 million of his three-year, $35.4 million contract up front. In return, investors get a 4.95 percent monthly return, and a chance to join him for the All Stars Weekend.
Why even use a blockchain? The tokenized debt is a way to decentralize personal loans to athletes, allowing fans to become investors, opening up an additional funding source for the stars, and a new way for them to interact with their followers.
And while Dinwiddie’s tokenized bond is a big step towards that goal, it’s not really very decentralized.
The tokens, issued on the Ethereum blockchain, fall under the SEC’s Regulation D, which means they’re restricted securities (i.e. not freely tradable) and can only be sold to accredited investors (those with income of over $200,000 or with net worth exceeding $1 million). They’ll be sold for at least $150,000 each, which means at the most 90 people will be able to get their hands on them.
The restricted access is a shame given these types of contracts’ potential. Tokenized bonds, where investors returns depends on the issuer’s future income, are very well suited to athletes and entertainers. People in these professions often require large investments upfront to complete rigorous training and extensive travel, and these token sales could fund talent with less economic resources allow fans to support them and directly share their idol’s success —not just on the courts, but in their pockets.
Income share agreements, a version of this idea, are already being used to combat ballooning student loans. Some students are financing their college education by making loan payments based on a pre-determined percentage of their income.
Should this be done in DeFi? Would be tough. These are reasons why no:*
U.S. securities laws: The value of Dinwiddie’s SD8 coins depend very literally on his own efforts, and that means they clearly pass the SEC’s Howey Test to determine whether a transaction represents an investment contract.
Limited adoption: DeFi has about 40,000 monthly users right now, according to Binance Research. That total user base may still be too small to attract big NBA stars with millions of fans (about 20 million people watch the NBA finals).
These are the reasons why yes:*
Increased participation: The link between token issuer and holders could be strengthened through a DAO, where the celebrities could potentially put some decisions (concert venues, sponsorships, etc.)
Potential for more efficient markets: Open sourced and free markets would give way to futures, options, short selling and more, on the tokenized bonds, adding depth to secondary trading. This would improve price discovery and give holders more options, for example, to hedge their contracts or to use them as collateral.
More open: While the market is still small, it’s still a lot larger than the less than 100 investors who will end up buying SD8 coins. Removing the accredited investors requirement would undoubtedly result in a more decentralized investor base for these “celebrity bonds.”
Unfortunately, the biggest reason why this is infeasible right now for U.S. issuers and investors, are securities laws. But non-U.S. celebrities could try it out, and maybe we’re not that far from a world where Roger Federer and Ed Sheeran bonds trade on a Dex, and where talented people without the means have a higher chance of making it big.
Bancor’s BNT Holders Start Earning Trading Fees
Those who held Bancor’s BNT on New Year's Eve have already received ETHBNT tokens in their wallets and started receiving a proportional share of trading fees from ETH-based transactions on the protocol. In its first week live, the ETHBNT pool processed 7,370,138 BNT in total trade volume, resulting in 14,740.276 BNT (about $3,000) in fees distributed to more than 60,000 liquidity providers.
Zero Collateral Makes Protocol Upgrades
Zero Collateral team, working on unsecured loans in an Ethereum testnet, took the community’s feedback (including from The Defiant here), and made changes to its platform, which is on testnet. They dropped initial loan rates to 12 percent from 20 percent, with the ability for rates to drop to as low as 4 percent. They added non-redeemable collateral, which should also push rates lower. Interest rates are also made to decline as previous interest gets paid. And loans can go up to any size available within the supply pool, provided collateral requirements are met.
Melon Protocol founder Mona El Isa imagines what the future of finance looks like: “She checked her asset managers’ league ranking only to find that her flagship smart-contract insurance fund is now in the top 50 worldwide. Yesterday was the end of the quarter, performance and management fees should now be deposited in the fund’s wallet. She reminisces back to how complicated quarter ends used to be — so much time wasted on paperwork and briefing investors.”
Haseeb Qureshi of Dragonfly Capital launches an introduction to cryptocurrency course: “'I’d known about crypto for a long time, but it never really clicked it until after I played around with Ethereum in 2017. It was then that I realized: this is an entirely new paradigm of what money can be. Money is now software. I was sure that it would change the world. Ever since then, I've been chasing the blockchain.”
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.