# How Banks and DeFi "make money"

**Published by:** [jelca thinks](https://paragraph.com/@jess/)
**Published on:** 2022-01-20
**Categories:** fintech, crypto
**URL:** https://paragraph.com/@jess/banks-defi-make-money

## Content

How banks make moneyBanks make money on fractional reserve banking / net interest margins.They pay for infra managing costs and then distributes profits to shareholders.What fintech/TradFi is aboutCreate better productsAllow for new products to be built on top - This is now called embedded financeHow DeFi "makes money"You deposit assets / lend into a liquidity poolEssentially earn interest as the algorithm / DeFi protocol lends those assets to borrowers (quite often very suspiciously)What it pays to deposit wallets - borrow wallets = what you getAlmost no fixed costs and no profits as it distributes most of it to depositors and returns some to a treasuryTreasury funds are used to fund contributors and maintain / upgrade the protocolProtocol has no shareholders but rather has token holders.DeFi protocols do NOT hold the funds themselves like a bank.They set the price based on perceived risk of borrowers / depositors aka lenders.P2P lending at its finest.No middleman

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