Mark Cuban, a billionaires thoughts on DeFi and why people should invest in it.

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Mark Cuban, a billionaires thoughts on DeFi and why people should invest in it.
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I read this article from the web based news service Business Insider: * Mark Cuban breaks down the DeFi ecosystem and how he profits from 'yield farming' in a new blog. The article contained 8 quotes, but these five were the most meaningful to me, so I wish to talk about them. You can read the article here.. If your new to DeFi or decentralized finance you can read my introductory article on DeFi here and then come back to this article to finish it up.

Mark Cuban Quotes on Why DeFi is a model for business and technology.

One

"In a money exchange business, or even a banking business, you have to have the financial depth to be able to offer the range of needed currencies and services. You need to be able to afford to hedge the risk of pricing volatility between currencies. If you want to do this business with scale, across the world, it can be very expensive and risky. Not for DeFi Exchanges. What makes running a DeFi exchange so much better than a traditional centralized financial business of this and ANY kind is that rather than the owners of the business, investors, and their creditors putting up capital for all the transactions to take place, Liquidity Providers (LPs) do it for them."

My interpretation:

In DeFi it’s the investors, called Liquidity Providers, who provide the capitol and assume the risks. They hope to gain from transaction fees and yield farming tokens.

My tangential thought:

Yield farming developed and became necessary because reimbursing liquidity providers for providing capitol and taking the risks was not a good model on all decentralized automated money market exchanges. Additional earnings to balance the risks of impermanent loss was needed, so yield farming was invented and the exchange tokens yield farmers earn must balance out their risk, so they still profit enough to have a good risk benefit ratio.

Two

"I'm a small LP [liquidity provider] for QuickSwap. I provide 2 different tokens (DAI/TITAN) that enable QuikSwap to offer swaps between these two tokens. As you can see here, this pair is one of many, and you can also see that based on the .25 pct of volume in this swap that Quickswap pays, my return on my initial $75k investment(based on fees only) as of this writing, is an annualized return of about 206%."

My interpretation:

One of the biggest attractions for DeFi is high yield. Bank interest rates and government security investments like US Savings bonds or Treasuries are very low. DeFi Annual Percentage Rates are very high.

My tangential thought:

This is driving money into DeFi from traditional markets. The 4% interest rate on stable coin pairs on Compound or Aave is 30 times greater then a bank savings account rate of 0.25%. These are real numbers, real yields.%

Three

"So in exchange for providing the Liquidity both TITAN and Quickswap need for their businesses, I get .25 of the transaction volume for swaps between these two tokens. As long as I keep making a good return, I will keep my money invested (Volatility can create mark to market losses). If not, I can immediately withdraw it (some platforms have a hold period or penalties). Have enough LPs, and the exchange is far more capital efficient than a similar traditional exchange business, and I get to make some money!"

My interpretation:

As long as the earnings I make from transaction fees on my invested capitol is good, and volatility of the trading pair is low, I make money and I am happy.

My tangential thought:

As soon as the earnings are low and the trading pair volatility is high, or price trend bearish, I should get out.

Four

"Consider Dave & Buster's tokens. When you buy their tokens, you can only use them in their arcades. You can't use them at others. One of the foundational businesses of DeFi is the ability to exchange the tokens of one project for those of another. That is why they call them Exchanges. And if the exchange is Decentralized, they call it a...DEX."

My interpretation:

The mobility of cryptocurrency tokens and your ability to invest them in multiple places is an incredibly valuable feature, because you can move to another exchange with better earnings or lower risks.

Five

"That is not to say that every crypto blockchain or DeFi project will work. They won't. These facts are not a secret in the crypto world. There is an incredible amount of competition. So much, in fact, many, if not most, will not work. They will not get enough users or generate enough fees to succeed. Crypto is brutally competitive. But in crypto vs. traditional, centralized businesses, all other things being equal, I'm taking crypto every time."

My interpretation

DeFi is competitive, and many projects will fail. But I know this, and everyone in DeFi knows this, or should know this. But despite this reality Mr. Cuban would still invest in decentralized finance over traditional finance and traditional businesses because the benefits described above outweigh risks.

My tangential thoughts

DeFi provides opportunities to people outside the traditional accredited investor groups and institutional investor groups to learn and utilize sophisticated financial earnings tools, which are based on a low capitol business model, where the customers bring the capitol, take the risks and profit from learning and efficiently moving their capitol i between different parts of this new financial ecosystem.

Last words…

I think DeFi is the future of finance, and we should spend time everyday learning about it.
What do you think?
Tell me in the comments below what you think of Marc Cubans five points above.

@shortsegments.

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Picture Credit:
A YouTube video about Mark Cuban. Link

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My DeFi Article:
Decentralized Finance terminology.

I was explaining Cubfinance to a new investor, and I realized by the glazed look in their eyes that I had lost them. So I back tracked in our conversation to the last point they fully understood. I realized there were so many things we assume people understand when we describe or explain decentralized finance, that we don’t explain it well. In order to help those new to defi I would like to explain a common term; liquidity provider.

Liquidity Provider

The definition of being a Liquidity Provider, is an individual who deposits dollar equivalent amounts of two assets into a trading pair on an exchange. In return this individual earns a share or percentage of all transaction fees paid by traders who use the trading pair. These sentences sound simple, but actually describe several processes which aren’t revealed at all by those words. So let’s break that sentence down and explain its components.

Liquidity

This means there are enough quantities of two assets in a tradition pair, that individuals who want to trade one token for another will be able to do so.

#Example One:
you want to trade Bitcoin for Ethereum. You have one Bitcoin and you want to trade it for ten Ethereum. This means there is enough Bitcoin and Ethereum deposited in the trading pair for you to be able to trade your one Bitcoin for ten Ethereum.

#Example Two:
You have ten Bitcoin and you want to trade them for 100 Ethereum. There has to be enough Ethereum deposited in the trading pair for you to trade your Bitcoin for 100 Ethereum. If there wasn’t at least 100 Ethereum deposited in the pool your trade wouldn’t go through. You might have to go to another exchange that has enough Liquidity that such a large trade is possible.

Dollar Equivalent Pairs

The next word you need to understand is the term dollar equivalent. It is easy to understand, once someone explains it to you. But the words by themselves don’t give enough information for you to know what to do. I think this is best explained by an example. In this example I will not use the true price of Bitcoin and Ethereum to keep the math simple, so you can focus on the concept, not the math.

#Example

If Bitcoin is worth 4000 dollars USD and Ethereum is worth 400 dollars USD, then one Bitcoin valued at 4000$ would be worth ten Ethereum worth 400 dollars USD.

So in order to deposit a Dollar Equivalent Pair, you will deposit one Bitcoin and Ten Ethereum in the Liquidity Pair. Thus the dollar value of one Bitcoin $4000 is matched by the dollar equivalent of ten $400 Ethereum, which is $4000.00 dollars.

It’s the ratio not whole numbers.

Fortunately you don’t need a whole Bitcoin or a whole Ethereum, just a ten to one ratio in value. So you could have 1/10th a Bitcoin or 0.1 Bitcoin and 1 Ethereum.

If we were doing one dollar Leo and one hundred dollar BNB, we would deposit 100x1$ Leo and 1x$100 BNB, so the value of 100 Leo $100, matches the dollar vale of 1 BNB $100, so they are deposited in this proportion.

Liquidity Providers and Smart Contract

When you deposit your assets into a Liquidity Pair on a decentralized exchange you aren’t depositing it into the exchange cryptocurrency wallet like you do on a centralized exchange. You are depositing the assets into a smart contract. This effects how you do things. This means you connect your wallet to the website, and give the website permission to access funds in your wallet. Then you transfer your assets into the smart contract.

Trustless

There’s no human involved at this point, so your trusting the code to protect your assets. Because it’s code and no human, it’s considered Trustless, as in your aren’t trusting another human with your cryptocurrency,

In the example above, where for simplicity, I said if Bitcoin was worth $4000.00 and Ethereum was worth $400.00, a Dollar Equivalent Trading Pair would contain One Bitcoin to Ten Ethereum. So if you wanted to provide Liquidity to a Trading Pair on a decentralized trading exchange, you would need to possess both Bitcoin and Ethereum in a ten to one ratio. Fortunately you don’t need a whole Bitcoin or a whole Ethereum, just a ten to one ratio in value.

How do you earn money? Transaction Fees

Those of you who buy and sell stocks, bonds, options, etc are familiar with Commissions: the fee you pay for the Stock Broker to make your trade. In fact Commissions are the most lucrative thing about being a Stock Broker. An exchange like the New York Stock Exchange or American Stock Exchange collects Commissions on literally millions of trades every day. But you need to have millions of dollars to be a Stock Brokerage, so you can collect those fees. Plus their are exams, certifications and regulations.

Transaction Fees

In cryptocurrency, decentralized exchanges only require you to bring dollar equivalent pairs and you start earning commissions on trades, but only in decentralized finance commissions are called transaction fees.

Percentage of transaction fees

If you provide 1% of the liquidity for a trading pair, you earn 1% of the trading or transaction fees every day that your deposited assets represent 1% of all deposited assets. It is helpful to look at an example.

#Example
The trading pair WLEO-ETH
You deposited 1 ETH and 10,000 WLEO.
Your deposit represents 1% of all the ETH-WLEO in that pool. The transaction fees for the day are $100, so you earn 1% or 1$.

Calculating Return on Investment

Percentage of transaction fees

In the above example, our hypothetical investment of $2000.00 was earning us $1.00 per day, and it sounds small. Now while that doesn’t sound like a lot, it was based on a very small amount of transactions, $100 per day. To be honest, that’s very, very small, and transaction volume is usually in the tens of thousands or millions. Let’s play with some examples. Same amount deposited, one ETH and 10,000 WLEO. So if transactions go up from $100 to $1000 per day, it’s $10.00. If transactions go to $100,000 it’s $1000 dollars.

Now look at Return on investment

So your $1000 worth of ETH and $1000 worth of WLEO could make you $1.00/day or $365/year, or a return on investment of 365/2000, or 18.25% per annum. Or if it’s $10/day, it’s 3650/year and a return on investment of 3650/2000 or 182.5%.

So now compare this to savings accounts offered by banks of 1-2% interest per year, or returns in the stock market of 5-15% per year. Now you understand why money is being invested in decentralized finance at an ever increasing rate.

Safety

While Providing Liquidity is profitable, it is not always safe, as hacks and exploits, are not uncommon and cause the loss of all your trading capital. It’s important to use trusted projects, which have existed a while or audited by reliable parties, like CertiK.

It’s also important to deposit your money with people who are identified by name, picture and who are well know, to reduce the risk of them running off with your money.

That’s the reason many investors on Hive have invested in Cubfinance, safety: known creator, and audited project. Link to Cubfinance.
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If you are careful, DeFi is safe, and lucrative. The earnings are the reason it is attracting investors from outside of cryptocurrencies usual ranks, and it has resulted in billions of dollars moving into DEFI this year.

So if you wanted to earn money without selling your cryptocurrency, you could become a Liquidity Provider on a decentralized cryptocurrency swap exchange, like Uniswap or Pancakeswap or Cubfinance.link

If you become a Liquidity Provider, the platform pays you a percentage of all the transaction fees for swaps or trades done that day, for the trading pair you provide liquidity for. As long as there’s lots of transactions or large monetary incentives being a Liquidity Provider can be very profitable.

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I think Defi is the future but mainly because banks don't even give you much interest back. Of course the liquidity provider fees don't really seem to count much as I don't think I have really see a noticeable increase in any of my LPs. The yield farming rewards do make up for it though.

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The main reason that Defi isn't for me at the moment is that it takes too much managing. I'm in the Cub Kingdom on CubDefi and the DEC-BUSD farm but that's only because it's run by people I "know". Even so, I'm not sure if the latter is a good move or not. 😁

If I had more time I might get involved in some of the more stable pools elsewhere.

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I completely understand, as I am managing my own DeFi investments, and the DeFi account for the No Loss Lottery.
I am going to offer a service called EasyDeFi which invests pooled capitol as a LP provider, and sends weekly earnings to pool members. It will be require no management by pool members or DeFi knowledge, and probably be stablecoin pairs to start off with and another Cub option.

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I am going to offer a service called EasyDeFi which invests pooled capitol as a LP provider

Sounds interesting. I look forward to hearing more about it. 😊

!ENGAGE 20

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Now as a millionaire I explain in detail how to earn with defi will run the crowds to invest,

Since I started in leofinance and saw all the potential that defi has, I have not left yet and no matter if the price of the cub drops, I will keep going until I get what I want.

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