Let’s start by examining what has happened in traditional finance (TradFi) over the past year. In TradFi parlance, the nominal risk-free rate is the nominal interest rate on risk-free securities. Typically, short-term US Treasuries are considered to be the risk-free asset. In October 2022, the yield on a one-year US Treasury bill was 4.50%. According to the Fisher effect formula, the real risk-free rate is the nominal risk-free rate less the expected rate of inflation. Using the University of Michigan “Surveys of Consumers” one-year expected rate of inflation of 5%, the real risk-free rate in October 2022 was 4.50% - 5.00% = -0.50%, meaning that we almost broke even investing in risk-free assets in October 2022 after taking expected inflation into account. Things weren’t quite as rosy in October 2021 when the yield on a one-year US Treasury bill was 0.12% and the one-year expected rate of inflation was 4.80%, resulting in a real risk-free rate of 0.12% - 4.80% = -4.68%.

Now let’s look at the crypto markets. If anyone tells you there’s a risk-free asset in crypto, don’t believe them. Even if you custody your own funds to protect them from Celsius or FTX or (insert your favorite bankrupt centralized crypto company here), there are smart contract risks and oracle exploits and plenty of other risks inherent to crypto. However, for the sake of making a comparison between decentralized finance (DeFi) and TradFi, let’s use Curve’s 3pool (USDC/USDT/DAI) on the Ethereum blockchain as the risk-free crypto asset. According to Yield Samurai, the yield on the 3pool on October 15, 2021, was 2.73%, including CRV rewards (assuming a 1x boost). On October 15, 2022, this yield was 0.44%.

Leaving inflation out of the equation (in other words, everything is nominal in the following discussion), the TradFi risk-free yield went from 0.12% in October 2021 to 4.50% in October 2022, while the DeFi risk-free yield went from 2.73% to 0.44% during that same period. The astute reader will notice that these yields moved in opposite directions. Furthermore, we can observe that, assuming the DeFi risk premium equals the DeFi risk-free yield less the TradFi risk-free yield:

Oct 2021: DeFi risk premium = 2.73% - 0.12% = 2.61%.

Oct 2022: DeFi risk premium = 0.44% - 4.50% = -4.06%.

In other words, in 2021, you would have been rewarded with an extra 2.61% for taking the risk of DAI depegging or USDT not being fully backed or a Curve smart contract exploit or your mom accidentally shredding your seed phrase. That extra 2.61% isn’t huge, but it’s positive. In comparison, in 2022, you would have taken a 4.06% hit for accepting those crypto-related risks. Huh?

For US customers, it’s not terribly difficult to open a Treasury Direct account to earn 4.5% on one-year US Treasury bills. Getting money into the 3pool takes considerably more effort. So why the recent negative DeFi risk premium? The hassle of getting money into the 3pool also applies to getting money out of the 3pool. You would need to withdraw from Curve and then send your crypto to an exchange and send that money to your bank that would connect to your Treasury Direct account where you could earn 4.5%. In this process, your money is sitting on the exchange for a while, which makes people nervous these days, and then your bank gets an incoming wire from the exchange, reminding them that you are involved in crypto, which might raise some eyebrows given the recent headlines.

Taking all of this into account, here’s a theory describing this bizarre “flippening”: In 2021, the 0.12% TradFi nominal risk-free rate was so low that investors were willing to accept the friction of moving funds to DeFi along with the risks of DeFi to earn an additional 2.61%. In 2022, investors are willing to accept the risks of DeFi and forgo earning 4.06% to avoid the friction of moving crypto funds back to TradFi.

Pronounced “tattoo dow,” tatwdDAO is a Decentralized Autonomous Organization (DAO) whose primary purpose is to give money to charity. Our mantra is best understood by visiting our website and scrolling all the way to the bottom. We’ll pause a moment while you do that – make sure to scroll all the way to the bottom.

Get it? The remainder of this article will serve as an introduction to tatwdDAO.

As mentioned above, our primary purpose is to give money to charity. The DAO uses JuiceBox to collect ETH donations and distribute them to charities. For each funding cycle, which lasts roughly 90 days, the charities will be chosen by the DAO. Anyone can contribute ETH and receive tatwd tokens in return. JuiceBox retains a 2.5% protocol fee, and the remaining 97.5% goes to the charities. tatwdDAO receives nothing.

The tatwd tokens that are received for donating ETH, along with Tiny Turtle NFTs, can be used to vote on Snapshot for the charities in the next funding cycle. Here are some specifics:

• JuiceBox distributes tatwd tokens for ETH donations in the ratio of 5,000 tatwd tokens per ETH

• Each tatwd token gets one vote on Snapshot

• Each Tiny Turtle NFT gets 10,000 votes on Snapshot

In addition to the primary purpose of raising money for charities, tatwdDAO’s secondary purpose is to educate. We plan to write a series of articles explaining crypto/web3 concepts and providing additional resources for you to dig deeper. Whatever you do, don’t send ETH to JuiceBox unless you understand what you are doing. If you already know what you are doing (or think you do), feel free to donate on JuiceBox. But please, start small.

If you do feel compelled to donate some ETH on JuiceBox, there’s one question that needs to be addressed up front: What keeps the DAO from changing the Ethereum funding distribution addresses in JuiceBox and performing a rug pull? There’s a feature in JuiceBox called “locked until” that prevents us from changing the funding distribution until a predetermined date. We have “locked until” set just after the end of the funding cycle, and anyone can distribute the funds from JuiceBox to the charities prior to the “locked until” date.

More to come soon. In the meantime, here are more specifics:

• The Tiny Turtle NFT collection is a specific collection of 300 turtles. There are other turtle NFTs, so don’t get confused. The description says there will be 10,000 Tiny Turtles, but there are only 300 of them. If more are minted, only the existing 300 turtles will have voting power.

• An initial charity, Coin Center, has been chosen for the first funding cycle. Future charities will be chosen through the governance process.

• We have a Twitter account

• Occasionally, you’ll find us hanging around the Tiny Turtle discord channel

Important disclaimer: We are not financial advisors, lawyers, or experts in anything, really. Crypto is risky, DAOs are relatively new and experimental, and you should always do your own research before signing a transaction on the blockchain.

Slow and Steady, Turtles!