Financial Institutions ‘Should be Concerned’ of Competition from Crypto/DeFi Businesses: Mark Cuban

Billionaire Mark Cuban is talking about yield farming now, which is a core feature of most decentralized finance (DeFi) projects.

He explains how instead of starting a business and then hoping to make enough revenue like in the traditional world, in the crypto/DeFi space, they sell tokens to raise capital, reward Liquidity Providers and validators, and build communities that replace layers of bureaucracy.

This makes it “a model for future technology businesses and possibly all businesses,” he said.

When it comes to the valuation of these projects, Cuban shares he looks for current revenues, growth rates, defensibility, the strength of the community, and if they can continue to grow as fast or faster than the crypto industry as a whole.

Crypto is also decentralized in its governance where no one owns majority control, not only because of the ethos of DAOs but also because it doesn’t involve the

“ABSOLUTE STUPIDITY of our regulators forcing some of the most impactful and innovative entrepreneurs of this generation to foreign countries to run their businesses.”

The Brilliance of Crypto/DeFi

In a blog post on Sunday on the Dallas Mavericks site, Cuban talked about the DeFi project Polygon (MATIC) in which he recently invested.

An Ethereum layer 2 solution, Polygon basically provides tools that enable transactions using their Ethereum/Solidity smart contracts to take place as quickly and inexpensively as possible while still being able to bring in more money than they spend noted the Shark Tank investor. MATIC -3.55% Polygon / USD MATICUSD $ 1.04
-$0.04-3.55% Volume 395.02 m Change -$0.04 Open $1.04 Circulating 9.08 b Market Cap 9.48 b 1 y StarkWare Proposes to Deploy Aave on its ZK-Rollup L2 StarkNet 1 y The Sandbox Game Is Migrating to Ethereum Sidechain Polygon and Launching A DAO in 2022 1 y Bitcoin and Ether Dump More Going Into Year-End, ETH Killers Showing Great Momentum ETH -2.62% Ethereum / USD ETHUSD $ 1,719.40
-$45.05-2.62% Volume 8.91 b Change -$45.05 Open $1,719.40 Circulating 122.37 m Market Cap 210.41 b 1 y Coinbase Predicts Substantial Growth of Newer L1 Chains & Institutionalization of Regulated DeFi 1 y A Possible Crypto Recovery Moving Into New Year, Risk-on Sentiments Send The Stock Market to Another Record High 1 y The Sandbox Game Is Migrating to Ethereum Sidechain Polygon and Launching A DAO in 2022

However, blockchain-based businesses diverge quickly from traditional software, and instead of building their businesses exclusively on a cloud computing platform, their businesses are decentralized.

Cuban finds it “brilliant” that here third parties like validators or miners put up their own capital to provide resources to support the network platform in exchange for rewards in the token of that network, which are created at “a near zero cost,” unlike centralized businesses in the traditional world where they would have had to raise millions and more.

“Where a crypto based business competes with a traditional business, the crypto business may have a significant cost of capital and cost of operations advantage. There are a lot of financial institutions that should be concerned.”

DeFi businesses like Polygon build their transaction volumes and fees by having enough widely and heavily used applications. And one-way projects like Polygon try to create a network effect is via DeFi based businesses.

Regulators Need to be Supportive

Here, Cuban talks about decentralized exchanges (DEX) whose “brilliant” part is liquidity providers (LPs) that put up the capital.

He has been actually testing out Polygon’s DEX QuickSwap, where he is a small LP where he is earning a percentage of the transaction volume for a particular pool. Cuban also provides liquidity on Bancor Network, where he gets rewards in the native BNT token. QUICK -6.22% QuickSwap / USD QUICKUSD $ 86.33
-$5.37-6.22% Volume 5.24 m Change -$5.37 Open $86.33 Circulating 514 K Market Cap 44.38 m BNT -4.02% Bancor / USD BNTUSD $ 0.53
-$0.02-4.02% Volume 4.67 m Change -$0.02 Open $0.53 Circulating 161.43 m Market Cap 85.97 m 1 y November Was the 2nd Best Performing Month for Decentralized Crypto Exchanges (DEX), After May 1 y Grayscale Makes Solana (SOL) the 4th Biggest Holding in its Digital Large Cap Fund, Adds Uniswap (UNI) too 1 y Jack Dorsey is Building a KYC-Complaint DEX for Bitcoin with a Decentralized Identity Solution

“Have enough LPs and the exchange is far more capital efficient than a similar traditional exchange business and I get to make some money.”

Cuban also covered AAVE, which “looks like a bank” but is nowhere even close to it; rather, he described it as

“a completely automated, permissionless platform where there are no bankers, no buildings, no toasters, no vaults, no cash, no holding your money, no forms to fill out, no credit ratings involved.”

While all of these features make crypto the future, not every crypto blockchain or DeFi project will work. Not to mention, “crypto is brutally competitive,” still Cuban says he will choose crypto over traditional businesses.

But Cuban has issues with the regulators with “politicians shitting on the innovations crypto is fostering,” unlike the early days of the internet when innovation and entrepreneurs were supported.

“Hopefully this changes quickly or we will lose the next great growth engine that this country needs.”