0/ The new @CreamdotFinance Iron Bank is one of the coolest things I've seen in DeFi in a while

Why?

It actually *creates* value for tokens like YFI and ALPHA

Huh? https://medium.com/@CreamdotFinance/introducing-the-iron-bank-bab9417c9a

1/ Right now basically allow borrow/lend is over collateralized

This is obviously not very capital efficient

2/ In tradfi, the primary way to enable under collateralized borrowing is to 1) know the users identity 2) have recourse

There are people working on bridging this from CeFi to DeFi, but this is a long and arduous road, and full of regulatory/compliance hurdles

3/ One clever solution to enabling under-collat borrowing is to limit what borrowers can do with borrowed assets

In tradfi, this is pretty difficult

With smart contracts, this is enforce-able

4/ This is what Cream's new Iron Bank is:

Under-collat borrowing, but where the borrowed assets are limited in what they can be used for

5/ Tellor is doing something similar, but is doing this based on users' bank statements

Cream's approach is more clever, I think

6/ Cream has a big pile of assets

They want to generate yield, so they want to encourage borrowers to borrow

7/ By whitelisting *strategies* (rather than people) for uncollateralized borrow, they give those strategies more capital-efficient leverage

This *creates* value out of thin air for tokens like YFI and ALPHA

How?

8/ Pre-iron bank, Yearn and Alpha Homora strategies could get access to the same amount leverage as a regular user

But, Iron Bank knows these strategies are "special" people

Because they can't change their strategies (at least not without gov votes)

9/ So the strategies are more credit worthy borrowers than traditional psuedo-anon defi borrowers, because you know what the strategy is going to do with the money

10/ So for a user of Alpha or Yearn, you can get access to more leverage per unit of collateral via Iron Bank than you could by going to Yearn directly

11/ By proving that you restrict what you can do with borrowed assets as a user, you can justifiably get more leverage (and hopefully more return)

12/ This means that Alpha and Yearn v2 strategies actually *create* value for their users that was previously impossible

And this creates defensibility for those protocols

Basically, group bargaining

13/ Theoretically someone could fork Yearn/Alpha and Iron Bank could white list the fork, but for now, this is actual some moat

Very cool to see Iron Bank

Props to the cream team

{fin}

14/ disclosure - Multicoin Capital is long ALPHA