Thread by @jbrukh

1/I think we will find in retrospect that decentralized lending protocols and their lending rates are of universal importance not just to #DeFi, but to the entire ecosystem.

I wrote a little bit about that here: blog.coinfund.io/crypto-borrowi…

I write about another interesting case...

2/#Layer2 is coming and in these networks we must capitalize state channel hubs in order to create throughput. This creates a substantial hurdle for running hubs & caps commissions.

3/Instead of locking capital, hub operators might leverage lending protocols to borrow it & increase throughput. However, the borrowing rate will inform the commission hubs will charge (and vice versa).

4/This is potentially a really interesting result in #DeFi. In most networks, we are used to thinking that provider competition erodes fees to 0 (a race to the bottom)!

But crypto payments is prospectively a huge market which requires *a lot* of capitalization for hubs.

5/In this scenario, fees might not converge to 0 but instead to the lending rate of the assets needed to capitalize the network (or a well-behaved function of them). That’s pretty unusual in my theoretical explorations.

6/To put things into more concrete terms, I was surprised or learn that the median Ether transaction today was about $500. And that doesn’t even include token values. And if you look at wallets, some of the most successful ones have done as many as 1.5m transactions per month.

7/We’re talking a potential addressable market of $8.8b of throughput needed in state channel hubs annually just on these metrics of our small community, while @compoundfinance has $146m in supply.

link.medium.com/xVQ9EHLA6Y

8/Just another fascinating case of lending protocol rates interacting with other #CryptoeconomicSystems. Will lending rates be explained by factor models in payment and staking systems? We’ll find out shortly. /fin