- Mark Cuban says he has entered the world of decentralized finance, or DeFi, through yield farming.
- The billionaire says he is making a 206% return on one of his DeFi investments.
- Cuban also warned many DeFi companies will eventually go out of business.
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Mark Cuban made the majority of his fortune selling Broadcast.com to Yahoo! for $5.7 billion in stock near the height of the dot com bubble. Now, the billionaire owner of the Dallas Mavericks says he is earning money another way – through yield farming.
Cuban has become a liquidity provider on DeFi (Decentralized Finance) exchanges, where he earns rewards for enabling users to swap between tokens. The "Shark Tank" star said he is seeing annualized returns of over 200% from the tactic in some cases.
DeFi is an umbrella term that refers to blockchain-run, decentralized financial applications that are seeking looking to muscle into territory held by traditional financial intermediaries like banks.
Cuban broke down his entrance into DeFi in a new blog, highlighting the advantages of what he calls "a model for future technology businesses and possibly all businesses."
Here are the billionaire's eight best quotes from the blog, lightly edited and condensed for clarity.
- "In a money exchange business, or even a banking business, you have to have the financial depth to be able to offer the range of needed currencies and services. You need to be able to afford to hedge the risk of pricing volatility between currencies. If you want to do this business with scale, across the world, it can be very expensive and risky. Not for DeFi Exchanges. What makes running a DeFi exchange so much better than a traditional centralized financial business of this and ANY kind is that rather than the owners of the business, investors, and their creditors putting up capital for all the transactions to take place, Liquidity Providers (LPs) do it for them."
- "I'm a small LP [liquidity provider] for QuickSwap. I provide 2 different tokens (DAI/TITAN) that enable QuikSwap to offer swaps between these two tokens. As you can see here, this pair is one of many, and you can also see that based on the .25 pct of volume in this swap that Quickswap pays, my return on my initial $75k investment(based on fees only) as of this writing, is an annualized return of about 206%."
- "So in exchange for providing the Liquidity both TITAN and Quickswap need for their businesses, I get .25 of the transaction volume for swaps between these two tokens. As long as I keep making a good return, I will keep my money invested (Volatility can create mark to market losses). If not, I can immediately withdraw it (some platforms have a hold period or penalties). Have enough LPs, and the exchange is far more capital efficient than a similar traditional exchange business, and I get to make some money!"
- "Consider Dave & Buster's tokens. When you buy their tokens, you can only use them in their arcades. You can't use them at others. One of the foundational businesses of DeFi is the ability to exchange the tokens of one project for those of another. That is why they call them Exchanges. And if the exchange is Decentralized, they call it a…DEX."
- "Every business or financial software service or application business has cloud computing and operating costs that very often grow faster than their revenues. This is not a surprise, it is exactly why software companies raise significant amounts of capital in order for their "software to eat the world." Companies like Polygon's capital needs are very different. Why? Because rather than building their business exclusively on a cloud computing platform like AWS, their businesses are decentralized. The foundation of decentralization is built upon an independent party…putting up their own capital to provide computing resources in order to support the network platform."
- "Any other business you have to raise a s–t load of money in order to host your own servers, or more likely pay for cloud computing costs which can be insanely expensive for compute-intensive applications and just as expensive for scaling heavy use applications. Plus, you have to hire all the people, have the CapEx to support them, etc. In the decentralized crypto world, these 3rd parties (minors, validators, etc.) provide the computing power that effectively runs the platform in exchange for rewards in the token of that network."
- "If Polygon, or any of their competitors, took a traditional, centralized business path where they controlled and owned everything, they would have had to raise not just millions but potentially much, much more. Instead, they create a near-zero cost token that they distribute in accordance with the tokenomics they defined to their community."
- "That is not to say that every crypto blockchain or DeFi project will work. They won't. These facts are not a secret in the crypto world. There is an incredible amount of competition. So much, in fact, many, if not most, will not work. They will not get enough users or generate enough fees to succeed. Crypto is brutally competitive. But in crypto vs. traditional, centralized businesses, all other things being equal, I'm taking crypto every time."