Store of Value Remains Crypto’s Best Use Case

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Ryan Zurrer is founder of Dialectic, a Swiss-based crypto-asset firm focused on on-chain opportunities. Previously, he led investments at Polychain Capital and served as chief commercial officer at the Web3 Foundation.

Store of value was the most viable and desirable use case across crypto in 2019 and offers a basis to increase users in the second decade of crypto.

Collateral-backed crypto-assets and alternative stores of value (SoVs) found their niche in 2019. Seeing crypto-natives begin to stake and save as part of the decentralized finance (DeFi) revolution was one of the most exciting trends in the space. We’re also seeing the re-emergence of community-directed capital pools known as DAOs, which are arguably a SoV in their own right.

The bitcoin community seemed to find common ground on its primary niche as a store of value rather than a payment mechanism. The SoV use case has become so compelling that the ethereum community sought to refocus around “programmable money” use cases: “ETH is money” dominated the discourse.

DeFi projects grew quickly. Synthetix grew its collateral-backed synthetic derivatives market by more than 680 percent in the second half of the year. However, DeFi has always been dominated by MakerDAO, which offers loans in the Dai (now Sai) stablecoin backed by a basket of other ethereum-based assets. Dai/Sai may look like very capital-inefficient mechanisms with an interest rate that reached as high as 20.5 percent p.a. in 2019, while collateral deposits sit in excess of 320 percent on average. 

These rates price in all of the risks inherent in crypto, from the security perspective to the protocol layer. DeFi interest rates should look more like emerging market rates (i.e. 20%+) than, say, LIBOR+1%. 

Moving into the second decade of crypto, I would not be surprised if we see some calamitous…

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