Luca Prosperi 5.0 4 ideas

Prime vaults (overcollateralized Bitcoin/ETH lending vaults, e.g., on Morpho) offer yields too close to the risk-free rate and do not adequately compensate lenders for the underlying risks, which include market risk (volatility gaps), smart contract risk, hack risk, and operational security risk. The current low yields are driven by an imbalance of excess supply over demand and the protocols being 'brutal for the borrower' with instant liquidations, requiring low borrow rates to attract users. A fair spread above risk-free should be several hundred basis points.

Bitcoin's volatility could decrease and its long-term value increase if it becomes a reserve asset for long-dated balance sheets like life insurance companies, which have a multi-decade investment horizon and would be uncorrelated, patient buyers. This would change Bitcoin's price behavior from being dominated by traders and arbitrageurs.

Stablecoins should be allowed to stream the risk-free rate (e.g., from treasury holdings) directly to holders on-chain. Current regulation prevents this, forcing the risk and search for yield onto DeFi protocols and retail users. Enabling this would repricing the entire DeFi yield curve and make markets more efficient.

Prediction markets are a superior primitive for expressing and hedging uncorrelated, long-dated risks, which is a major need in crypto currently dominated by short-term, correlated trading assets. They represent an area where crypto's permissionless, global distribution channel is a clear advantage over traditional finance.