With Ukraine receiving donations in bitcoin and ethereum, what more could the country do with it if it were plugged into decentralised finance? 

Keynes argued that public debt and deficits should be run during wartime, i.e. ‘the war chest’ but when your currency isn’t an international reserve currency this can prove very difficult and costly. 

So, what are the options for a country entering wartime while running a current account deficit of USD 547 million, and most of its national debt is external, meaning its bonds are issued and priced in USD? 

This means the country suffers a double-whammy in a situation such as this as the exchange rate against the USD plummets. There are just two options: 

A. it needs to issue bonds to raise money to fight the war and rebuild after the invasion, likely in the tens of billions 

B. seek international aid from institutions like the IMF

Ukraine's 10-year bond is around 15.615% yield, it’s 1-year bond is around 32%, and inflation in the country is running close to 8%. This is an unfavourable environment to issue bonds in as everyone runs to the USD as a safe haven currency. 

Not only that but bonds are becoming less favourable as the Great Bond Rally for the past twenty years looks like it’s over as interest rates around the world have hit the lower bound and yields start to trend up, pushing bond prices down. 

The second option is international aid. However, this is often a poisoned chalice (see Jamaica’s ‘Life and Debt’ situation with the IMF) and the institution that usually deals in such relief, the IMF, issues aid denominated in own unit, the SDR, a basket of currencies heavily weighted towards safe havens like USD, EUR and JPY, so it’s value could rise over the term of the loan and often leads to years of austerity in the debtor country. 

Currently, 1 SDR =1.394860 USD

The architecture for institutional grade decentralised finance is being built and just as there is potential for alternatives to the SWIFT network, so are there alternatives for raising funds from a global and decentralised pool of lenders. 

RociFi has built a decentralised credit assessment engine for Web3 which is built not just on the quality of the assets in one’s wallet, but also on the quality of on-chain behaviour. Analysing transaction behaviour and integrating with decentralised identity (DID) providers, RociFi assesses a user’s (pseudonymously) credit risk and can for instance blacklist nefarious actors. 

Now, let's run a thought experiment, assuming the Ukrainian government had already integrated their wallets into DeFi protocols to borrow and lend previously. As a top tier borrower, it could borrow stable coins at 8-12% per year with 0 collateral on RociFi, far below the 32% it costs the country to borrow issuing it’s 1-year bond.

Or, assuming that given the turmoil their credit risk has increased, which is likely, Ukraine could still use the assets in their DeFi wallet as collateral to borrow stable coins beneath their current 32% yield.

The balance of trade between countries has become so skewed over the years that most countries run constant deficits against a couple of countries, namely China and Germany, which run massive surpluses.  

RociFi doesn’t take account of the balance of trade.  

A DeFi-native government could borrow and leverage their cryptocurrency, even without putting down collateral just like some of the overnight interbank loans in traditional markets. 

What if it also digitised and collateralised some of its balance sheet and reserve assets, such as USD and gold to further their access to peer-to-peer international decentralised markets?

These are just some of the possibilities that alternative, decentralised lending protocols like RociFi offer to governments in worst case scenarios. Regardless, the one thing that everyone on all sides desires, is a fast end to the violence and loss of human life. 

** RociFi is building the Layer 1 for a permissionless, multi-chain web3.0 credit economy.**