In this Article, we start with overviews on banking chaos including high interest rate & deposit run, then expand on potential impacts to banks. Towards the end, I will also add in from a Web3 angle.
Mobile banking rewrote money movement
Over 120 Mill users use mobile banking at least once a month – who would’ve thought 300k could be transferred between Accts on the same day, all through few clicks on phone? And yet in 2023, it seems hard to not do so – A few click on phone in exchange for a 4.15% IR at Goldman Sachs with 0 risk, I mean why wouldn’t you?
| Bank | Saving APY |
| Goldman Sach (Apple Card) | 4.15% |
| American Express Bank | 3.75% |
| Western Alliance bank | 5.05% |
| JP Morgan Chase | 0.01% |
| Wells Fargo | 0.15% |
To one up: Why even bother with stock markets funds? Just secure your 5.05% IR at WAL – your friendly neighborhood bank, NO risk!
| Index Fund | Year-To-Date |
| S&P 500 | 7.4% |
| Dow Jones | 0.5% |
| Oil(WTI Crude) | -26.7% |
While numbers are great with paper, things not looking pretty with banking sectors.
Deficient Cost of Capital
Bank raised their IRs to keep their deposit – trapping themselves in a liquidity paradox – Banks are now paying depositors 5% APY, while generating a 3-4% from these deposits. That 1-2 percent is really squeezing each and every pennies out of banks’ pocket. And while 5% can ensure deposit security in the short term, it also does not guarantee your deposit loyalty next time Goldman Sachs offer 6%.
The problem of deficient cost of capital became deposit quality issue. Money can all flow into Chase’ account, but they can also flow out easily. Everyone just wants a rental, few wants to buy – much like the NYC housing market.
How do we raise as much as attractions, while maintaining certain level of Deposit quality?This reminds me of my web 3 years, where retentions and incentives truly set the competition apart for DeFi Protocols.
Retention and Community building in Web3
Strangely in parallel with banks, asset management products have became popular on Arbitrum Chain – one of the fastest growing smart chain with $3 Bill worth of digital assets. While high APYs and incentives are everywhere on the chain, there are three criteria I follow rigorously before committing for the right yield products/asset manager.
- Fund Security – The protocol ensures funds to be secure, and liquid: through due diligence, credentials check, and third parties audits,
- Lucrative Return – The protocols generates immediate return and remain consistent with performance
- Add-on Incentives – Some levels of community engagement are important for digital natives as well.
Example: Sharp Labs (Asset Management Protocol, recently enlisted on Arbitrum Chain)
LeoQuidity 