Web3 Things: Student Debt Yield Farms, TaskRabbit DAO, Security Deposit Escrow
Happy Sunday and a very warm welcome to all the new subscribers! This week I’m trying something new. As you may have noticed, I’ve been writing a lot more about web3 things over the last few months. My husband had the brilliant idea to do separate web3 focused editions of the newsletter and today is the first edition of Web3 Things! The thinking currently is that every other week will focus on web3 but I’m not making any promises ;-) At some point I may split them into 2 different newsletters as I recognize some readers might not care at all about web3 while others only want to hear those ideas. Send any feedback you have and as always, if you enjoy it, please share it with a friend or two! 🙏 This past week I’ve been thinking a lot about:
Student Debt Yield Farms
Security Deposit Escrow
1. Student Debt Yield Farms
Student loan debt in the United States currently totals a whopping $1.75 trillion. Today, around half of students graduate with debt and the average person takes on just under $30k in loans, with 92% coming from federal loans and the remainder private. The vast majority of borrowers (~30 million people) are between the ages of 25 to 49 and collectively hold $1.22T in debt. The history of student loans dates all the way back to Harvard in 1840, but it wasn’t until 1958 during the height of the cold war that the US government created the National Defense Education Act to support fields like science, engineering, and education which served as the first federal student loans. Since the 1950s, the cost of education has continued to rise substantially, as has the number of people choosing to go to college; which means that the number of students taking on debt has followed suit.
During the pandemic, many stimulus plans were put in place including a hold on student loan repayments. In March 2020, the government put a pause on borrowers’ need to make their monthly payments and also stopped charging interest on those loans. That pause has been extended multiple times, including another recent postponement through August 31st 2022. While the concept of total or partial student loan forgiveness has been a topic of conversation for years, it is more likely than not that borrowers will still have to repay at least part of their loans. One idea to prepare for this and also release some of the pressure would be to take the monthly payment that you’d typically be making and put it into a yield farm, earning stupidly high APY (sometimes as high as 35%) right now. When, in the future, you need to start making payments again, at least the money would be earning interest and can help reduce some of the burden. Smart contracts can also act as a commitment device and make sure the payments are made and avoid default, which affects 15% of borrowers at any given time. A web3 company can act as the onramp and aggregator of all these loan payments, obfuscating all of the complex DeFi under the hood to borrowers. As the liquidity pool of the entire network gets larger, you have many options including liquidity mining to continually maximize profits and pay out to the members.
2. Taskrabbit DAO
There are DAOs for pretty much everything these days. Looking for a designer? VectorDAO has you covered. Interested in owning a franchise? Check out FriesDAO. Love to play golf? LinksDAO is trying to buy a golf course. Braintrust is building a decentralized, user-owned version of Upwork, KlimaDAO is fighting climate change through carbon offsets, and so on and so forth. There are now hundreds of NFT DAOs, professional DAOs, investment DAOs, gaming DAOs, Staking DAOs, DeFi DAOs, and more. The structure of a DAO is like a collective or cooperative where the members and community control the governance of the group and also benefit in its success. One reason that I think DAOs are such an interesting evolution of corporations, clubs, and other types of entities is that for the first time, contributions are compensated commensurately. The more value you bring, the more you earn. And, at the same time, you remove the middle man who historically profited the most without providing the most value.
One area that I haven’t seen DAOify yet is TaskRabbit, the marketplace for independent labor to do tasks like build furniture (this was far and away the most common use case which led Ikea to purchase the company in 2017 for an undisclosed amount), move stuff, paint a wall, or pretty much anything else you need. TaskRabbit takes a 15% commission on all jobs booked through the platform and ultimately controls what the users can and cannot do. A platform could take the Braintrust model of creating a decentralized talent network and focus on the TaskRabbit supply instead of technical freelancers. The DAO would allow workers to retain 100% of their payments and also receive compensation for things like vetting and verifying other members, referrals, and other necessary functions to make the organization run. By decentralizing the network, you can align incentives with the individuals who are building it as opposed to a centralized platform that extracts disproportionate value and control. It would also be easy to bootstrap the supply part of the network as you already have a platform where these people exist and can provide them with a much better offer.
3. Security Deposit Escrow
As of 2021, homeownership rates in the US were at 65% with the remaining 35% renting, representing 44 million households who rent (and the number of renters has been going up year-over-year). Every time a new tenant moves in, the landlord requires a security deposit which serves as insurance for the landlord in the event that they need to clean the unit, make repairs caused by the tenant, or are left with unpaid rent. The deposit typically equals the equivalent of 2 months’ rent (and in California, if the unit is furnished they can ask for 3 months’ rent) that must be paid when the lease is signed and is returned within 21 days of the end of the agreement period, assuming no major damage to the property occured. A few cities require the landlords to pay the tenants interest on their security deposit (including San Francisco which I guarantee most tenants do not know), and if they don’t, or if they don’t return the deposit in the allotted time, the tenant can take the landlord to small claims court. There is often little or no documentation as to what was paid for the deposit and also what the terms of refund are. Typically, upkeep and maintenance on the unit are not deducted from the security deposit, but that is often not written up in the rental contract and deductions on the deposit are rarely itemized.
As of 2021, the average rent in the US was just about $1300, so that means that there is ~$114B worth of security deposits every year. Similar to the concept for student debt above, there could be a web3 company that acts as escrow for security deposits. The company would provide the smart contracts which automatically govern how and when the deposit is collected, deducted, and then returned to the tenant, including any required interest payments or deductions which could be transactions signed by wallets of both parties. After the deposit is paid, the funds would be put into a liquidity pool to yield farm on DeFi protocols and earn maximum APY. At the end of the period, the deposit would be returned and the yield generated could be split among the landlord and tenant (the split would also be specified in the smart contract). Since many tenants stay in their units for multiple years, the funds could be locked for a significant amount of time. Not only would this remove the headache of dealing with the payment and return of these deposits, but it would also take funds that are typically earning 0% interest and create a way for both parties to benefit monetarily.
That’s all for today! If you have thoughts, comments, or want to get in touch, find me on Twitter at @ezelby and if you enjoyed this, please share with a friend or two! If you want more web3 content, let me know that too!