Over the next decade, we are most likely going to see a great deal of financial product releases with yield benefits.
This is because moving on-chain creates a new layer of monetization for financial markets and that layer is primarily through deposits for stablecoin mints.
Think about it. My bank could announce a partnership with a brokerage firm to launch yield-bearing tokenized stocks.
All I have to do is buy my bank’s issued stablecoin, use that to buy and tokenize qualifying company stocks and simply start earning on-chain yield.
By holding the tokenized stocks, I can directly access yield in real time based on predefined rules.
Now there are a lot of ways this can be implemented. The requirements may include staking said stock derivative to a contract or simply holding in a wallet. Notwithstanding, the most important part of the process has already been completed off-chain.
How I use the tokenized stock may not really matter to my bank because blockchain's programmability makes it easy to be able to autonomously track and pay yield to circulating tokens, no matter where they are.
The big question, however, would be:
Why would my bank want to pay me yields to hold a stock derivative? How can they afford it?
In the case explored above, it's actually quite straightforward.
I bought a stablecoin first. Let's say $10,000.
That's effectively $10,000 my bank could invest into government bonds, easy money, no?
We also have to understand that technically, that $10,000 is still with my bank as an electronic holding, that's only to be expected with the brokerage and the bank being in partnership. Whatever client money hasn't been withdrawn remains with the bank.
This effectively expands the amount of money my bank can lend out, the gift of fractional reserve banking.
In addition to this. It can be expected that to receive the stock derivative, I would have had to lock up (send to an in-platform vault perhaps) the stock being tokenized. If we are dealing with a stock with dividends, this may be something that would be given up in the contract to receive yield on-chain.
Of course, these are all just rough thoughts and actual execution of something like this could be quite different.
The bottom line is that we are moving into a time where yield products like this will be introduced in great numbers. Some will involve off-chain strategies to generate income for these companies offering said yield products and others could involve on-chain strategies that could be low-risk or high-risk.
What this leads to is accelerated crypto developments. The battle of launching the best yield products that combine high ROI, with compliance (or simply the avoidance of legal problems) and sustainability will bring a great deal of heat to our industry.
I started off exploring what's possible with the tokenization of stocks because the existence of dividends for certain stocks in itself is a means of revenue generation that could be combined with other income generating strategies to scale yield products for clients.
Interest bearing savings accounts will move on-chain with greater gamification. The perks of stocks ownership will completely change as the asset's investment appeal will no longer depend on price growths but also yield offerings from financial institutions or companies.
We can expect to see these things roll out within a decade. The push for ETF staking is current evidence that institutions have an eye on offering yield-bearing products.