Mark Cuban pens blog post exuding the benefits of Decentralized Finance (and shilling some of his investments). I’ve summarized the key talking points and provided some commentary.
Polygon - Cuban is a large investor and calls Polygon a ‘business.’ Interesting, as you don’t hear this formality in crypto, but Polygon does run an extremely well organized and strategic operation that has lead to explosive network growth. Some of the things Polygon has done extremely well:
Aligned themselves with the Ethereum community rather than coming across as competitive (Binance Smart Chain). Aave coming to Polygon was an absolute game changer.
Offered significant $MATIC rewards to protocols building on Polygon to attract users and liquidity. This has been the major driver for success.
Been very outspoken with the community and customer focused on major media (Consensus 2021 and Twitter regulars).
Scaling blockchains is a better business model than scaling traditional, centralized software businesses due to the economic opportunity provided to third parties. There is a cost sharing with very high upside effect at play that’s mutually beneficial for all parties supporting the network.
Cuban gets it:
“The crazy part of it all, is that because these businesses are token driven and the costs are distributed and operations are decentralized, it is FAR LESS EXPENSIVE to operate than a traditional centralized business. So where a crypto based business competes with a traditional business, the crypto business may have a significate cost of capital and cost of operations advantage. There are a lot of financial institutions that should be concerned.”
Zapper - Another Cuban investment that recently raised $15m. There are several of these master DeFi interaction and tracking applications (Zapper, Zerion, DeBank). Their missions are to simplify the DeFi experience by aggregating many protocols on a Dashboard and allowing users to directly interact with the smart contracts.
DEX’s - Cuban briefly explains the reduction of risk protocols benefit from by allowing users to provide liquidity, trustlessly, which in turn is a profitable opportunity (most of the time). DEX builders are software and smart contract engineers first, and market experts second. Allowing liquidity providers with market expertise the opportunity to put up capital with highly secure, scalable, and unstoppable software protocols makes this a mutually beneficial relationship.
Cuban disclosed one of his triple digit APY farms (Iron.finance) - just leaking alpha all over the world. I’m conflicted whether this is good or bad for muh yields!
Bancor - Another DEX on Ethereum that is under-appreciated, however, has been innovating in the area of impermanent loss protection for liquidity providers.
Cuban’s comment on competition amongst decentralized exchanges is very true, and I’ve considered writing a blog post about the “DEX wars” that are happening on Polygon and Fantom (mostly Fantom now since Quickswap and Sushiswap are becoming the dominant Polygon DEXs). It’s been very easy for new exchanges to pop up, clone the Uniswap V2 code, and try to vampire away liquidity with the promise of high rewards for LPs. A word of caution that Cuban does not mention: The problem is many of these new DEXs have been different flavors of a rug pull - they’ll either steal your funds outright (Aura.finance) or increase the withdrawal/deposit fees to 100% (Dinosaur Swap):
“One thing to note is that the competition between exchanges is BRUTAL. The rewards have to be high because it is truly a Laissez Faire market. Exchanges compete heavily for LPs. You have to be careful if you choose to be an LP. Unless you are very experienced as an LP make sure to Do Your Own Research. Make sure the platform has a legit business.”
Aave - The king and cornerstone of Ethereum DeFi. Cuban is a fan and many crypto natives have the majority of their assets parked here for capital efficiency purposes. It’s secure, reliable, they ship quickly, innovate regularly, and are very easy to use. Long $AAVE. Mark - Aave is leaving Compound in the dust. The competition gap isn’t even close anymore and I suspect it’s due to the differing governance models and extreme disparity in token distribution ($COMP is controlled by a16z, Robert Leshner, and Coinbase). In addition, Aave’s low fees are akin to being a loss leader in order to onboard more users, cultivate loyal LPs, and slowly weed out the competition (e.g. CREAM, Compound, bZx).
Cuban reemphasizes the gigantic efficiency improvements provided by decentralized finance protocols over the high overhead, traditional banking system. We are all evolving to be our own banks, provide liquidity to borrowers at a lower cost, avoid the red tape, bureaucracy, sometimes predatory/prejudiced approval processes, and grow wealth in a trustless manner. This isn’t even a FU to banks, but technology and software has innovated to a state where banks aren’t as essential for many financial services as they were in the past.
Cuban’s ethos has always aligned with the crypto and DeFi ethos of contribution-based opportunity. Traditional, centralized businesses have shareholders and investors to answer to, where deep pockets have a voice, whereas in crypto, anyone can provide creative and innovative code, content, token models, etc and be rewarded regardless of their net worth, who their parents are, or where they went to school.
Notice Cuban does not mention Bitcoin once in the entire article. DeFi isn’t happening there. Here’s an update on the top 10 crypto fees - Bitcoin has fallen below Quickswap, a Polygon project!
Valuation for cryptos is still evolving. Cuban looks at revenues, which is a hard financial metric, but there are a lot more intangibles. In addition to the strength of the community/communication/Lindy, I tend to look for composability, network effects (partnerships with other useful DApps), multichain strategy. Thankfully, there are now many research firms that provide on-chain metrics to help track growth - transactions, fees, TVL, etc.
I remember the many podcasts, TV interviews, and articles Cuban contributed to during the pandemic. He scolded our government for not doing enough to help people during the economic downturn and lockdown, put up millions of his own dollars to save employees lives, and had tremendous ideas for how to do things differently. He has been spot on in his assessment of DeFi thus far, and expects DAOs to be integral to the economy in 15-20 years.
Cuban/Yang 2024!!!
Mark Cuban on Bankless is must watch: