BarnBridge is an idea & whitepaper originally conceived in Q2 2019. At the time, MakerDAO was starting to garner mainstream awareness and capture the imagination of what is now known as the DeFi, or decentralized finance, community. Over a year later, with 60% of Global debt yielding less than 1% & over $15 trillion of global debt yielding negative rates, capital continues moving into higher risk yield streams. This is not a coincidence or a trend. Historically speaking, going all the way back to biblical times, working capital chases yield, assuming relatively equal risk.
The acceleration of debt levels, across the globe, was happening before the financial crisis caused by Covid-19. In Q1 2020, we saw global debt increase to $258 trillion. This number is 331% above global GDP, according to the IIF, which represents global banks and financial institutions. With the Federal Reserve operating under the pretense that they have an infinite supply of cash and the euphemism “money printer go brrrr” joining the mainstream lexicon, it’s quite clear these numbers will likely increase and debt issuance to GDP will continue to accelerate.
The traditional financial system, referred to as TradFi in this paper, is experiencing a historic uptick in aggregate debt levels while yield and interest rates plummet. Meanwhile, there is a decentralized financial system, referred to as DeFi in this paper, burgeoning in the digital economy with digital assets and cryptocurrencies. While debt levels, which is referred to as TVL, or total value locked in decentralized financial protocols, has increased from hundreds of millions last year, to billions of dollars in 2020, yield on these instruments continues to dwarf the menial rates offered by comparable products in the legacy TradFi system. Conversely, due to assumed higher risk levels coupled with higher efficiencies provided by smart contract technologies, annual percentage yield (APY) is far higher on decentralized protocols than what can be found in the traditional financial system. Working capital is following the historical trend of following higher yield which is why we are seeing TVL moving to DeFi at an accelerating rate. This is a trend that will continue.
The need for familiar TradFi instruments to exist throughout the DeFi ecosystem has never been stronger. BarnBridge is an idea whose time has come.