Continuing to write about some of the things that make me optimistic about the real-world use cases of web3. This one is much more financial, but just as impactful.

Credit is what makes the modern economy run. The idea is simple: people can borrow money to do things with that money, returning that money with a return to the investor plus a fee. Ex a baker needs money to buy a store. She doesn’t have the money so she goes to the bank to take out a loan. She buys the store and bakes bread and with her profit returns the money to the bank including an interest rate.

In 2021 the amount of debt in the world totaled $225 trillion. The problem is some of these loans are more efficient than others. In some countries loans are being quoted at a rate of 20% per month where in other countries those same loans would be 7% per year. The problem is access to efficient capital in varying financial systems.

This is where web3 comes in: web3 provides a fairer and more transparent financial system that is global. The rate of borrowing money is the same everywhere, and price discovery is more transparent. Those same people who were borrowing money for 20% per month can now get rates that are closer to 7% per year, making the economy more efficient.

In addition to providing better rates for borrowers, crypto can also provide liquidity for lenders, allowing for even more efficiency.

Take the example of a solar farm in the United States. They need to take out a $50m dollar loan to pay for the solar farm. Investors in return with earn 8% APY once the project goes live. In the traditional financial system the investor’s investment is illiquid. They cannot sell the asset until the loan reaches maturity. In web3 the investors can receive tokens that can be redeemed at the maturity of the loan. These tokens can be freely bought and sold, creating a secondary market of liquidity for the project. This can allow an investor to cash out prematurely as long as there are other buyers in the market.

The components of a public immutable ledger make this possible. In the traditional financial system there are intermediaries and regulations that block much of this liquidity, but in a transparent programable financial system this just isn’t the case. It’s one of the core use cases that has me excited about the potential for web3.

Continuing to write about some of the things that make me optimistic about the real-world use cases of web3. This one is much more financial, but just as impactful.

Credit is what makes the modern economy run. The idea is simple: people can borrow money to do things with that money, returning that money with a return to the investor plus a fee. Ex a baker needs money to buy a store. She doesn’t have the money so she goes to the bank to take out a loan. She buys the store and bakes bread and with her profit returns the money to the bank including an interest rate.

In 2021 the amount of debt in the world totaled $225 trillion. The problem is some of these loans are more efficient than others. In some countries loans are being quoted at a rate of 20% per month where in other countries those same loans would be 7% per year. The problem is access to efficient capital in varying financial systems.

This is where web3 comes in: web3 provides a fairer and more transparent financial system that is global. The rate of borrowing money is the same everywhere, and price discovery is more transparent. Those same people who were borrowing money for 20% per month can now get rates that are closer to 7% per year, making the economy more efficient.

In addition to providing better rates for borrowers, crypto can also provide liquidity for lenders, allowing for even more efficiency.

Take the example of a solar farm in the United States. They need to take out a $50m dollar loan to pay for the solar farm. Investors in return with earn 8% APY once the project goes live. In the traditional financial system the investor’s investment is illiquid. They cannot sell the asset until the loan reaches maturity. In web3 the investors can receive tokens that can be redeemed at the maturity of the loan. These tokens can be freely bought and sold, creating a secondary market of liquidity for the project. This can allow an investor to cash out prematurely as long as there are other buyers in the market.

The components of a public immutable ledger make this possible. In the traditional financial system there are intermediaries and regulations that block much of this liquidity, but in a transparent programable financial system this just isn’t the case. It’s one of the core use cases that has me excited about the potential for web3.