Banks can only operate if they raise money. Just like any other business, they must offer some type of product or service in order to attract customers. The most basic services they provide are security, convenience, and potential returns. This post will focus solely on the raising money aspect of banking and how that will likely happen for cryptobanks.
Retail Deposits
The majority of the money banks raise is through core demand deposits. This is simply the storage of people’s money. If you do bank, you most likely set up a checking and a savings account and make deposits directly into those accounts. Most companies allow you to set up a direct deposit of your paycheck into one or more of those accounts.
Wholesale Deposits
Another source banks use for financing their daily operations is wholesale deposits. These are deposit that come from other banks, institutional investors, or large companies. These tend to be larger sums of money but short term in nature and present some additional risks than core demand deposits.
Share Equity
A bank might also issue shares which are just like shares issued for any company. These shares give you ownership rights and allow you to partake in the bank’s profits.
Debt Issuance
Banks might also raise money through issuing debt. This is essentially them taking out a loan that they repay to the debt-holders.
Cryptobanking on the Blockchain
These processes for raising money likely do not change in the blockchain and cryptocurrency (B&C) space. For a cryptobank to do this, they still need to provide some benefit and like we discussed in The Emergence of Banks post, retail cryptobanks of the future can still provide benefit to those who don’t want to bear all of the risk of storing and remembering their private keys to access their funds. They can also contribute to the strength and resiliency of the network, but what we should see is the cost of banking fall and hopefully the interest earned from banking increase.
We will still see money raised in cryptobanking through debt and equity issuance which will probably still offer higher returns than money raised through deposits. One interesting thing that might emerge in Cryptobanking is the idea that depositors, shareholders, and debt-holders might have more control in how their funds are used. For more of this insight please check out our post on How Banks Make Money.
System Tinker 