Something interesting is happening in what is normally a dull corner of corporate finance. According to David Pakman, a managing partner at the venture firm CoinFund, finance executives are looking to park their companies’ excess cash in DeFi vaults rather than money market funds or other familiar short-term investments. If this comes to pass, it would pull billions of dollars of new assets into crypto.
The term DeFi vaults, if you’re unfamiliar, describes protocols that allow investors to gain yield through decentralized smart contracts—think of platforms like Aave, Yearn Finance, or Morpho, which act as automated asset managers. They are not new, but Pakman says they are drawing new attention from the corporate world amid its broader push into stablecoins.
To understand the context here, it’s helpful to know that managing incoming cash is a full-time job at big companies. The balance sheets of Microsoft and Apple, for instance, list around $102 billion and $55 billion, respectively, in the categories of cash, “cash equivalents,” and short-term investments like stock. The people who oversee these cash hoards are not stupid, of course, and seek to add a little extra juice to earnings by optimizing yield.
This process typically involves calling up a bank during business hours and arranging a money market transaction or something similar. Now, though, there is a compelling alternative in DeFi, which typically offers higher yields, and—unlike conventional financial instruments—the opportunity to invest for very short periods of time with little fuss.
Pakman says his firm is advising traditional companies, including a large consumer tech business, about how to connect their cash to DeFi vaults, typically by means of stablecoins. While the recently-passed Genius Act bars stablecoin issuers from paying interest, that prohibition doesn’t apply to a spate of other players, including DeFi platforms. This offers a pretty obvious workaround and, as Pakman observes, the “cat is out of the bag.”
No well-known corporate brands have gone on record saying they are putting cash into DeFi, but it likely won’t be long before they do. I say this in part because I put stock in Pakman, an experienced VC who worked at Venrock and Apple, and who is not one for hype. But I also think traditional companies will start parking their cash in DeFi because it makes sense: The best platforms are hyper secure, and are faster and more lucrative, so why not use them to squeeze out a little extra yield?
If you want another sign of how quickly crypto is entering the mainstream, Pakman mentioned in passing he is teaching a DeFi-related class at the University of Southern California—and his course is one of at least eight on crypto. It was less than a decade ago that putting Bitcoin on a syllabus would have seemed radical, but now, crypto is part of the curriculum at universities. There is no going back.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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MAIN CHARACTER OF THE WEEK
This week’s main character nod goes to Robinhood CEO Vlad Tenev, whose company posted record revenues thanks to strong third-quarter crypto activity. At a live earnings call, Tenev also announced Robinhood is doubling down on prediction markets and tokenized equities.
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