Introduction

I’ll admit it, I got caught up in the GME hype. For a period of a few days, I was real worked up about what appeared to be clear market manipulation. In my mind, this was Wall Street sticking it to the little guy, leaving us with stocks that could no longer be bought, and rapidly increasing losses. I was pissed. I still kind of am. I didn’t lose much, and what I bought was with the full understanding of “I’ll probably lose it. but what if I don’t?” After the dust settled, I noticed the mechanics of everything playing in the background. This is what really stood out to me. And then I came to the realization:

If you can’t beat em’, join em’ (you really can’t beat them). 

A couple of thoughts before I get more into this statement:

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You Don’t Own Your Robinhood Shares

This became painfully obvious. It’s more like an IOU. Robinhood owes you the shares you purchase via their platform. What do they do with those shares? They go make money. Through lending shares to various funds, they create the environment for short selling while making a profit. I don’t really see anything wrong with this, other than the risks attached to it for Robinhood’s ability to remain liquid. If I want to cash out my shares, Robinhood must deliver me that money. What happens if Robinhood lent out a ton of shares and their shareholders try cashing out at extremely high prices? Well, they better have the funds on hand to deal it out. What if they don’t? What if they call back those loaned shares and the borrower can’t meet the request? Liquidity crises. 

The best part for Robinhood in their revenue model is that they don’t actually have to put up the money to buy the shares to lend them out, we do that. They simply put up the money to provide the infrastructure to allow us to do it for them. The free service we receive is in exchange for us funding their revenue models. It’s brilliant. Now that we understand it, we can start to think as they do. 

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Buying Low and Selling High Is A Meme 

It’s a joke but I’m still going with it. We’ve been trained to believe this because it’s literally one of the few ways we small guys can turn a profit. Sell higher than we bought. We can also earn traditional dividends and over a long period of time they can really add up. However, what if there was a new way to earn money that we little guys have been traditionally locked out of? Well, there is, and it’s DeFi. 

Market Makers and Brokers

Market makers and brokers are two market participants that earn in their own ways. Market makers provide liquidity to markets and earn a spread. Brokers traditionally earn trading fees and through financing methods like the Robinhood scenario. 

I have been trying to distinguish what role DeFi liquidity providers are best classified as, as they (or we) don’t really fit either category nicely. On the one hand, we are market makers, providing the liquidity for trades to happen. The issue is, unlike market makers who profit directly from the spread of a trade, we lose a little bit every trade (impermanent loss). We are always on the wrong side of the trade. We serve the function, but not the revenue model. Are we brokers? We collect trading fees but provide zero infrastructure. We fit the revenue model, but we don’t serve the function. Does this make us Market Brokers? Maker Brokers? Broker Marketers? I don’t really like the simple term “liquidity providers.” It bores me, to be honest. In essence, that’s what we are, literally providing liquidity, but that’s not very interesting and worth writing an article on a Saturday night about. This just in, liquidity providers in DeFi are best known as liquidity providers! Groundbreaking, please retweet and follow for more. 

So what are we?

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We Are Independent Banks

We self-custody assets and lend them to markets for a fee. I’m choosing to look at it this way with intent, as the way we define ourselves today can greatly impact the decisions we make. Ask yourself a question:

If you were a bank (I’m now telling you that you are), what assets would you want to hold?

I will answer this question publicly. I want to hold assets that will earn me a return for the rest of my life. I want my children and grandchildren to earn dividends from The Bank of KCrypto. I don’t want to be a gambler’s bank. I don’t want to be a bank that loses money. To answer more specifically, I want to hold dollars (stable coins), large-cap cryptos (btc, eth, bnb), stocks (synthetics), and emerging markets (Fuel, Auto, Bifi, Yfi, Uni, etc). I then want to lend those assets to liquidity markets for a fee. I deserve that fee, after all, I am the bank. Be ruthless with your choices. You don’t owe a project anything. If it doesn’t deserve to be in your bank, it shouldn’t be. 

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Conclusion

Now that you are a bank, you don’t have to be a huge bank. You can be a small bank. A growing bank. Any size bank you can be right now. All that matters is that the assets that you own are earning YOU money, not someone else. Again, if you can’t beat em’, join em’.