NEWSLETTER #4: Codefi Data's API is Live!
I hope this email finds you safe and well. It seems like decades since our March newsletter given both our new global COVID19 reality, and on the more positive side, the breakneck speed at which decentralized finance continues to grow. At Codefi, we’ve been grateful for the distraction and focus of our work as we continue to build out the future of financial services and DeFi. This month we released our Codefi Data API offering (more on that below), and launched our new Codefi Inspect tool to provide transparency into DeFi protocols such as public audits, admin key details, oracle dependency and on-chain activity. Our DeFi User Research Report on user habits in crypto markets also came out this month, and we released a new case study video for our €350m tokenization project with real estate fund management company Mata Capital.
We’ve also been keeping an eye on the possible trends and habits that are emerging in our new reality, and thinking about what that may mean for the future of blockchain networks and decentralized finance. This month we offer some of our insights on how we see the traditional financial system changing, how that might be accelerating the case for Central Bank Digital Currencies, and which startups in the crypto space are most recession-proof.
Project Highlight – Codefi Data API
Earlier this month, we externalized our Codefi Data API, starting initially with information aggregated around DeFi lending protocols and smart contracts. Our DeFi Score team has collected and synthesized information currently scattered across multiple sources into an enriched data model now available for the community to use directly, for easier integration for users and dapps. With this API, developers, investors, businesses, and DeFi enthusiasts can now retrieve this DeFi risk data in an easy-to-integrate format that better supports their projects, without having to build or maintain custom indexing infrastructure.
We hope this Codefi Data API release is progress in the never-ending pursuit of transparency on DeFi financial risks across the industry. The first iteration of the Codefi Data API will make available the Codefi DeFi Score and its underlying data elements. This will enable the integration of DeFi score analytics into the decision making and collateral management processes for users of DeFi lending protocols. Going forward we will incorporate additional DeFi data and analytics to meet the needs of the institutional DeFi ecosystem.
To get access to the Codefi Data API, get in touch here. For more information on the API and what it entails, visit our site here. To join the conversation on DeFi data and give us feedback, join our DeFi Score Telegram group here.
We’re excited to release this API to the community, and to hear from you about the kind of data you want to see on our platform and in your lives.
Quick Codefi Hits
New to the Newsletter and to Codefi? Check out this explainer video about ConsenSys Codefi.
ConsenSys Codefi Survey: TLDR: We want to get to know you better and it’ll take 3 minutes.
DeFi Rate: CodeFi Launches New DeFi Lending Risk-Management Tool: Inspect: Released last week, Codefi Inspect is an open source project dedicated to protocol transparency in DeFi, tracking all public audits, admin key details, oracle dependency and on-chain activity.
DeFi User Research Report: A recent report commissioned by ConsenSys Codefi examines user habits with regard to cryptocurrencies and decentralized finance (DeFi). One finding: Many of the pain points people experience revolve around information overload and staying on top of changing rates and fees.
Evolving Trends in Token-Powered Networks: the industry has come a long way since the token launches of 2016-17. We take a look at current ecosystem trends and how these have evolved over time in the light of recent regulatory, technical developments, and the appearance of new players on the token-powered playing field.
“Future of Finance” – We Won’t Ever Think About the Financial System the Same Way
from Lex Sokolin, Global Co-Head, ConsenSys Codefi
For the first time in a long while, I find myself speechless.
My writing has always been about the creativity of entrepreneurs in the face of a monolith. That monolith was the financial incumbents. That innovation was human ingenuity across AI, blockchain and digital experiences, working on beautiful progress in the face of rational skepticism.
Today, we just need the monolith to stand. And we need the entrepreneurs to endure to come back another day.
Right now, nobody is thinking clearly. There may be plans and math and bailouts. We have made a global choice – save lives, burn the bridges. Like the Russians retreating into the frozen country from Napoleon, destroying stocks and supplies along their way to starve the French, we are hunkering down in isolation to starve the coronavirus. As if a virus cares for this logic.
To save our lives, we have had to sacrifice our economic heart – the one that brings food, community, employment and other sustenance to billions. There was no choice. It is worth pausing on the strata of this impact.
First, we have the individual. Individuals produce and consume. Most produce, that is, add to GDP as employees of companies. They consume largely based on income and wealth levels. Let’s do a quick back-of-the-envelope. Of the 330 million people in the US, 160 million people are in the labor force. There are eight million households with children under the age of 3, another 10 million households with children under the age of 5, 15 million under the age of 11, and another 15 under the age of 17 (source). So that’s about 45 million households who are now at home with kids, and I’ll just assume that one parent in the household is no longer able to work.
Nearly 17 million people filed initial claims for unemployment insurance over the past three weeks, suggesting that the unemployment rate is already above 17 percent —well above the 10 percent reached in the wake of the recession that ended in 2009. Let’s simplify and say 40 million people out of 160 million people will exit the labor force for the time of contagion. In the case of a three month quarantine, we have just created 25 percent unemployment for 25 percent of the year, ignoring all the associated friction costs.
U.S. GDP is about $20 trillion per year. Cut that by 25 percent, and you get $4 trillion. This is why the congressional rescue package is in the $2 trillion range, and not the smaller billion-sized actions that were previously considered. Even if you redirect $2 trillion into supporting consumer spending and making sure people have some type of safety net, there are existential complications.
For example, where would those $2 trillion have gone instead? Likely lower priority projects, like building the best ICBM, but jobs are on the line no matter what. If you just print the money, you devalue the purchasing power of existing money, and just re-distribute the losses politically. That may still be our best answer.
The fiscal stimulus is not the only thing we need, and the follow-on effects on the markets can again create systemic peril. To that end, we should pay close attention to the actions of the Federal Reserve. In the first week of it’s $2.3 trillion stimulus programs aimed at helping businesses and state and local governments, it has already bought $109 billion of agency mortgage-backed securities, and announced a plan to create a repurchase program for $500 billion of Treasurys. This already happened in 2008 as a backstop to souring financial instruments.
More notable is the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility to support the bond markets. This program could allow the Fed to be a direct underwriter in primary issuance, as well as a liquidity provider in a secondary market. Put simply – if you are Walmart, you can borrow from the Fed. Or if your Walmart $100 million bond comes due, you can refinance it. The key is that instead of enabling banks to do this activity, the Fed is taking on the account.
One argument against Central Bank Digital Currencies (CBDC) that we often hear is governments do not want to be the entity providing financial accounts to businesses and consumers. This would wipe out parts of the banking industry. It would also turn finance into a version of the Post Office. Such logic implies instead that banks should sponsor accounts, and governments should back the banks. But now is a crazy time!
The Fed is lending to industry, side stepping banking infrastructure to make a faster, direct impact. This opens up an uncharted path for CBDCs, especially as they relate to institutions. And if we have sovereign-backed blockchain networks, I would expect to see the rest of tokenized and decentralized finance eventually being ported over to connect to that infrastructure. It’s a small silver lining, but I won’t turn away even small rays of the Sun.
Once we have some semblance of normalcy and have regained control over the pandemic, there is still the question of what remains. Moscow was burned for Napoleon so that no food was left, and his armies starved and froze. Will our industry be similarly ravaged? The key question in my mind is about small businesses and startups. According to JP Morgan, the average business has 27 days of cash on hand, before it defaults and dies.
In the crypto markets, I would figure out how to provide services adjacent to industry leaders like Binance and Coinbase and their businesses. Watching Binance try to snap up CoinMarketCap for as much as $400 million and launch a debit card suggests to me two things.
In this coming period, spoils will go to companies that generate their own cashflow and balance sheets without external funding, and second, companies with large user footprints will flourish, while the rest will be integrated as features or liquidated. Delivering a large audience and a data engine to a large trading value is clearly synergistic. Building risk management, analytics, staking, and other neo-banking and roboadvisor features also makes sense.
If we look at the parts of the ecosystem that generate cash flow in a downturn, it still largely comes down to trading and mining. These are the core engines of the crypto economy, and will thrive as the traditional monetary system thrashes itself. One step down in total addressable market size are the media businesses, enterprise blockchain, digital assets, and developer tooling. Lots of folks are building things and talking about them, and that will continue under economic pressure as well. Companies that are taking a more niche bet will need to find a way to add value to revenue for the industries mentioned above. It is right to show conviction under pressure, but you have to be nimble and accurate.
That was a whole lot of newsletter, so thanks for sticking with us. While in-person events are still on hold for the time being, that hasn’t stopped the brilliant organisers of the upcoming Ethereal Summit from May 7-8. Tune in from your sofa for some great discussions from our DeFi Score team, Codefi Activate team, Codefi Assets team, and many more. We hope to see you there! In the meantime, follow us on Twitter, learn more on our website, and let us know your thoughts. Whether you’re interested in working with us, for us, or you just want to say hello, please feel free to contact us.
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Till next time,
The ConsenSys Codefi Team
Previous Codefi Newsletters
Did you miss a newsletter that you really wanted to read? Is it a rainy Sunday and you want to dive deep into the archives of decentralized finance? Don’t worry, we’ve got you covered with our repository of past Codefi newsletters.
About ConsenSys Codefi
ConsenSys Codefi is the blockchain operating system for commerce and finance, built to optimize business processes and digitize assets and financial instruments. We combined elements of digital assets and tokenized securities, crypto payments processing, enterprise finance blockchain, and the emerging frontier of decentralized finance to build a global software enabler for the new financial infrastructure. Think Twilio, for blockchain-based finance.