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YieldBlox will transform Capital and Incentives in the Stellar Ecosystem

It’s Sprout’s world — we’re all just living in it

Capital Efficiency: Activating your money

High-velocity, high-efficiency money is the name of the game in crypto. You can move money across the globe in seconds and leverage it in 15 different ways to compound value creation. Combining these two driving forces has allowed crypto to become the exponentially growing money monster it is today. Stellar excels at the first of these; it’s one of the fastest blockchains out there. However, it’s lacking in the second criterion. Once money enters the Stellar ecosystem, there’s little reason for it to stay there and be productive. By far the biggest reason for this is the lack of money markets. In the programmable blockchain universe, passive participants (casual users and holders) can enter an ecosystem, deposit their assets in a money market to earn some interest, and forget about them. Active participants (traders, market makers, power users) can then collateralize their assets in the money market and borrow passive participants’ assets for trading, yield farming, etc. This relationship benefits both active and passive participants. But most importantly, it benefits the blockchain ecosystem as a whole since a large percentage of money remains active in that ecosystem, constantly creating value.

Incentives: Cash Rules Everything Around Me (CREAM)

At its core, incentives drive crypto, usually monetary ones (CREAM). In the last section, we already somewhat covered this when we mentioned how passive money has no reason to stay in the Stellar ecosystem. There’s nothing for it to do to be productive and generate revenue (CREAM). We see another example of this by looking at Stellar’s validator count vs. other chains. The Stellar Consensus Protocol(SCP), by design, does not include economic incentives like Proof of Stake(POS) does. This design is fine due to SCP’s unique trust model, but it also means there are much smaller incentives to become a Stellar validator than there are on a POS chain. Stellar doesn’t pay you for being a validator; Solana does. As a result, Stellar has ~30 validators, and Solana has thousands (CREAM). Because of the SCP, the effect on validator counts isn’t really a concern. However, if we expand this incentives rule to the rest of the Stellar ecosystem, things look problematic. Stellar is unquestionably the best blockchain for building fintech platforms on. However, why would I build a non-custodial Stellar-based fintech platform when there aren’t any monetary incentives for doing so? Revenue models for non-custodial fintech platforms are hard (CREAM). Furthermore, why would an end-user use my platform when there aren’t any protocol-level interest rate products I can offer them (CREAM)? YieldBlox is designed to handle these exact issues. Sprout is the king of CREAM.

YieldBlox enabled Fintech Platform Interest Rate Products

With the introduction of YieldBlox, fintech platforms building on Stellar can now use it to offer their users interest rate products while staying non-custodial and trust-free. Since YieldBlox is a DeFi product, it lives at the protocol level of the Stellar Ecosystem and is incredibly easy to integrate. All an integration requires is a button that makes a few API calls, and boom, the platform’s users can now deposit assets into YieldBlox’s lending pools and earn interest.

YieldBlox enabled Fintech Platform Revenue Models

This section is probably the one we’re most excited about. A new YieldBlox update will allow users to delegate a percentage of their token yield to another account. This change is tiny, but it’s incredibly powerful when considering the ramifications for fintech platforms integrated with YieldBlox. The goal for fintech platforms building on Stellar is for users not even to know they’re using a blockchain. As a result, most of their users don’t know or care about YBX token yield, so the platform is free to input a high delegation percentage when creating the YieldBlox deposit request for the user. This delegation means platforms will receive a steady stream of YBX tokens from their user’s deposits. That’s revenue!

Closing thoughts

Overall, we’re incredibly excited for YieldBlox. The Stellar ecosystem is going to change forever once it’s released. We’re expecting to release at the beginning of December. There’s a lot of work to do before then. In the near term, YBX airdrops will start being distributed tomorrow at 11:59 PM UTC, so keep your eyes open if you’re trying to scoop up some tokens on the DEX!

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Script3 is a DeFi studio focused on strategic building. This publication is a place where we share our ideas and beliefs, and anything else we find interesting.

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