Cryptocurrency, ‘decentralized finance,’ and the sweet promise of 8% interest

February 19, 2020, 3:37 PM UTC

This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to receive future editions.

Good morning. The U.S. economy may be going gangbusters, but for those looking for a return on their savings, the picture is less pretty: Even so-called high yield savings accounts offer a pittance in interest—Goldman Sachs’ Marcus product, for instance, currently offers a measly 1.7%.

That’s what makes the new world of decentralized finance, or DeFi, so intriguing. This exotic corner of the cryptocurrency markets has been around for barely two years, but is attracting outsize interest because users boast of earning 4 to 8% interest on deposits.

Those higher interest rates are possible, DeFi boosters say, because there is no bank or other middleman to profit off consumer deposits. Instead, the system relies on pairing individual borrowers and lenders who rely on automated “smart contracts” to administer loans and pay out interest.

Investors who want to try their hand at DeFi can turn to platforms like MakerDao or Compound, which arrange loan contracts using cryptocurrencies like Ethereum or so-called stablecoins, which are pegged to the U.S. dollar. The platforms are growing quickly and, earlier this month, the fledgling DeFi industry touted the fact that over $1 billion of Ethereum is currently locked up in interest-yielding contracts.

Another reason to take DeFi seriously is the people who are building it. While the industry has its share of crypto cowboys, many others come from the world of mainstream finance. These include Compound’s CEO, Robert Leshner, a trained economist who spent years predicting Federal Reserve rates. Another is Richard Ma, who came up trading commodities for Tower Research, and now runs a firm called Quantstamp that audits blockchain projects.

Ma estimates there are only around 50,000 people currently using DeFi products. But he believes this number will soon mushroom thanks to startups like Nuo and Ramp that aspire to be the Stripes and Plaids of the DeFi world—helping consumers and merchants connect their checking accounts to the new realm of decentralized borrowing and lending. He also predicted 4-8% interest rates will be a spur for investors to cross over to DeFi.

There is, of course, no guarantee any of this will come to pass. The paltry number of current DeFi users underscore that it’s still a fringe area of finance, and that even sophisticated investors will have a hard time getting their head around notions like automated Ethereum contracts. Meanwhile, an ingenious robbery this weekend, in which a hacker conned a DeFi service out of nearly $1 million, showed the technology is neither as secure or decentralized as its evangelists claim.

But like Bitcoin or the Internet itself—which many once dismissed as a fad—it feels like Defi is here to stay. The idea of an open financial system beyond the banks is a powerful one, and there are too many smart people building it to think it will be stopped. And that promise of 8% interest rates might be too sweet to ignore.

A final note to Ledger readers: We’ve already assembled an impressive list of names to join us in Montauk for Brainstorm Finance on June 17 and 18. They include top executives from both traditional finance and crypto companies, and a surprise dinner guest. We’ll be sharing more details next week. 

Jeff John Roberts



This edition of The Ledger was curated by David Z. Morris. Contact him at


Mike Bloomberg, Democratic presidential aspirant, publishes plans for regulatory clarity around cryptocurrency ... LendingClub buys Radius Bank, the first fintech acquisition of a U.S. Bank ... Prince Harry has been meeting with Goldman Sachs, to unclear ends ... China grows a (private) blockchain lending platform to soften the business impact of coronavirus ... Wells Fargo backs crypto-analytics startup Elliptic.


German digital bank N26 closes all U.K. accounts, blaming Brexit ... HSBC, short on profits, will cut 35,000 jobs over three years ... After some confusion, the IRS backtracks on guidance saying video game currencies like Fortnite V-bucks were taxable ... Coronavirus has delayed deployment of new bitcoin mining equipment, which is mostly made in China ... J.P. Morgan sets a July deadline for fintechs to strike data-sharing agreements.



While some of the patents mentioned the guarantee of peer-to-peer privacy, there were no mechanisms to prevent the Chinese central bank from having full oversight of users’ transactions, Ms Boring said.

From a Financial Times deep dive into 84 patents filed as part of China's efforts to take the lead on digital currency. The potential digitization of China's currency has raised global concern about the power it might give the authoritarian Communist Party around the world. In particular, it might give China a foothold - and significant intelligence advantages - in developing nations where non-bank digital payments systems are dominant. The Hudson institute's Tim Morrison told FT that the patents speak to “China’s ability to effectively impose its system on the rest of the world".



The number of fintech startups founded in 2019, according to a surprising new report by Deloitte. That number has been declining since it peaked at 818 new fintech startups in 2014. On the other hand, the total amount of fintech investment reached a new high of $69.2 billion last year. Deloitte found that a large majority of that funding went to companies founded between 2008 and 2015, and said that investors were "strategically picking their spots" in the sector.

In other words, despite all the hype about insurgents, this is looking increasingly like a mature, if still growing, sector. Fintech in 2020 is less about radical ideas than skillful execution.


Despite 'crypto winter,' investors bet on Bitcoin mining - David Z. Morris

Did 'techlash' kill Alphabet's city of the future? - Robert Hackett

Inflation is at historic lows, so why do things seem so expensive? - Erik Sherman

Gold is nearing a 7-year high, but it can't keep pace with Big Tech - Bernard Warner

What happens to leftover campaign funds when a presidential candidate drops out? - Morgan Enos

Businesses lost $500 million more in email scams last year - Alyssa Newcomb



In honor of Black History Month, Boston-based OneUnited bank issued a debit card bearing an image of abolitionist Harriet Tubman. And yes, she's giving what you might recognize as the 'Wakanda Salute' from Marvel's Black Panther. While not necessarily a representative sample, African-American commenters on Twitter were not terribly pleased by the tribute, with journalist Yesha Callahan summing up the general sentiment: "Harriet didn’t die for this."

Perhaps surprisingly, OneUnited is America's largest black-owned bank, and much of its marketing focuses on community empowerment. Black-owned banks in the U.S. have declined by more than half since the financial crisis.

Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.