In personal finance, there’s nothing more depressing than the savings account.
It has always been the least glamorous, most conservative place to stick money. But once upon a time it did something for your financial health. In recent years, it’s been a slow way to lose ground. he average savings account rate is 0.06%, according to Bankrate. That might as well just be zero. In fact, in a time of high inflation (like now), it’s worse than that — you’re losing purchasing power by leaving cash in savings accounts.
Anyone in decentralized finance (DeFi) knows that higher rates can be attained through its various opportunities, but of course those things are riskier because smart contracts get hacked, the market is small enough for external events to have serious consequences and regulators loom. Even worse, there are a lot of hoops to jump through to get there. That’s why many companies, starting with Compound Labs, have been building ways for people to access DeFi returns without an Ethereum Wallet.
Split the Difference
The broad idea is simple: set up a relationship with a company that has clearance to touch people’s bank accounts, allow people to deposit their fiat into a high yield savings account, the DeFi partner converts all those deposits en masse into crypto (usually a stablecoin like USDC or DAI) and then invests all that somewhere in DeFi.
If all those deposits outperform the promised rate to retail, the companies that facilitated the investment can split the difference.
Compound is one of the most well known DeFi protocols. It’s a money market. Users can borrow one asset and earn interest on that deposit. That deposit can also serve as collateral for the user to take out a loan in another asset, if they want. It can be a good way for a long term ETH hodler to make a deposit and borrow a stablecoin in order to make a short term trade on the market, while not spending their ETH (unless the trade goes bad).
After largely turning Compound over to the holders of the COMP token, Compound labs shifted to building a product that runs on Compound. It released Compound Treasury in June 2021, promising 4% returns to investors via partnerships with internet-based banks and other companies that have access to retail investors’ deposits.
It relies on partners to deliver the product to retail users and right now the site doesn’t show any of those partnerships in place.
It should be noted that a product like this may have higher yields but it also is unlikely to come with the protections found on typical, classic savings accounts.
Since then, other similar products have arisen scratching much the same itch.
Circle offers Circle Yield, which is only open to accredited investors and companies looking to earn returns on their treasuries. Since it’s from Circle, it relies on USDC for investment, the stablecoin created via a partnership between Coinbase and Circle.
Circle Yield works via fixed rated yield over pre-determined lockup periods. The site currently shows 4.65% returns for one-month long deposits, and 6.35% for deposits that last one year. That’s down from the range it listed in early December, from 6-8%. In December, Circle reported that 85% of positions are reinvested at the end of their term.
It’s less clear where its returns come from. It only describes the yield sources as “institutional counterparties.”
Corporate payment card company Ramp adopted Circle Yield for a portion of its treasury, finding the long term zero-interest rate environment a difficult one for capital preservation. “While the majority of our Corporate Treasury remains invested in conservative investments,” Alex Song, it’s head of finance wrote in a blog post, “we are glad to be one of the first non-crypto companies in America to deploy a meaningful allocation of our Corporate Treasury into USDC.”
Two other projects just announced fundraising rounds in related areas.
Last week, Conduit announced $17M in investment led by Portage Ventures, with several others in the round. CEO Kirill Gertman described the company to The Defiant as “b2b2c,” in that its customers are businesses who have access to consumers. “The basic idea is we are an API provider,” Gertman said.
None of Conduit‘s partnerships are live yet, but it’s looking forward to opening in Canada and Brazil, with partners in each place shortly. Conduit expects to take advantage of both DeFi yield and centralized crypto opportunities, from companies like BlockFi.
What it invests in to get the higher yield depends on where the end user lives because different opportunities are allowed in different places, Gertman explained. In Brazil, it’s fairly open, but in Canada, a BlockFi investment might be more complicated from a regulatory perspective.
“My favorites are going to be conservative in some sense. It’s going to be Compound. It’s going to be Aave,” he said, because those have been around long enough that they have a track record Conduit can draw from. As other DeFi yield sources last a longer time without hiccups, it might start using those as well.
Meanwhile, Seashell comes to the space with a vision that involves ultimately getting crypto back to something it’s never cracked: payments.
Seashell announced a $6M raise last week as well, co-led by Khosla Ventures and Kindred Ventures (Robinhood’s CEO Vlad Tenev also participated).
The core idea of Seashell is that there is no reason to bifurcate liquid funds the way that banks do it, into savings and checking accounts. They can be one current account, in the view of Seashell’s Daryl Gok, the CEO, and when your money is waiting to get spent it can earn a higher return.
“What we do want to be able to uphold is the ability to withdraw at any time,” Gok said.
Seashell will have its own app, on iOS, Android and the web, and it will start with a savings product, but the idea is to get to payments. If two Seashell users make a payment between each other, there will be no cost at all, because in truth the funds really won’t have moved at all.
That’s a long term vision, though. It will need a large market penetration before payments become feasible, but until then it hopes to build up a customer base by offering superior savings rates. Intriguingly, it’s looking beyond Ethereum for places to make those deposits. It has investors from Avalanche, Solana, Terra and Polygon, so it’s trying to look at those to find the most risk tolerant places to start with.
“In some way we could call ourselves blockchain agnostic but in another way we are multichain,” Gok said.
If a crypto company can unlock this, it could be powerful. In China, where there is a culture of super apps (one app that does nearly everything for a consumer), Alipay’s payment app became the largest mutual fund in the world by offering retail users a better savings option.
So far no one has really delivered on that in the West, but entrepreneurs keep looking to Asia and hoping to copy that success.