Sweep mission: Grow the on-chain economy

Andy Singleton
Sweepr
Published in
5 min readAug 18, 2023

A lot of us believe that when we grow the on-chain economy, we improve transparency, access, and innovation for financial services users.

IT’S NOT WORKING. DeFi assets have been shrinking for almost two years. In 2021 they reached a high of $200B, and now they are at about $50B. Stablecoin stocks are also shrinking, at the rate of about $500M per week.

DeFi has become too small to support innovators. It has become a hobby, not a business. It’s difficult to make a living providing financial services, if your total addressable market is roundoff error compared with tradfi markets. Dollar stablecoins have enough traction to support real businesses, at $120B. But, that’s shrinking at $500M/week. A growing market is a requirement for startup success.

We’re taking some action.

Photo by Filip Urban on Unsplash

Stop the bleeding

First, stop the bleeding. We’re competing for the $500M/week. Most of it is going to off-chain money market funds. However, about $20M/week is going into “tokenized treasuries” — money market securities that are packaged for on-chain delivery. That leaves $480M/week of unsatisfied money that we can compete for.

We can get some of that money from a targeted set of buyers that are abundant on-chain: software. Software such as DeFi protocols, self-custody wallets, trade and treasury automation, and AI — these software agents LOVE tokenized on-chain assets. It’s SO MUCH EASIER to build services with tokenized assets, than with a jumble of bank and broker APIs.

Software agents can use a dollar yield asset as yield-earning collateral (like they use stETH instead of ETH). And, they can embed “sweep” features into their dollar handling. In traditional banking, a “sweep” feature takes the money that you don’t need immediately for payments, and earns yield on it.

The SWEEP coin is designed to be embeddable. It’s unpermissioned, simple, and perpetual.

  • Unpermissioned. Software is not a person, so it can’t pass KYC checks that are designed for people. We can have other ways of identifying good actors, but we need to start by being kind to our faithful software agents.
  • Simple. It shouldn’t require staking, savings vault deposits, rebasing… Professionals should do that for you and give you one coin that just gains value.
  • Perpetual. You can do the work to embed it in software and workflows, and you know that it will still give you what you want a year or three from now, when the business cycle has completely changed. We call Sweep “smart savings” because we work with smart human borrowers who bring us new asset types, and adjust allocations. Currently, US treasuries give a great risk-adjusted yield. In other parts of the business cycle, we will tap into commercial borrowing, and hot DeFi yields. The borrowers put in first loss capital and due diligence, so savers don’t have to.

Grow the stock of on-chain securities

Second, we’re committed to funding tokenized securities. Securities are a huge asset class that can get a lot of benefit from DeFi tools. However, over the past five years, nobody has been buying them. Humans and normal funds have demonstrated no interest in crypto formats for their securities. They prefer the simple custody services and high volume of off-chain markets. However, we’re suddenly seeing rapid growth in the sales of “tokenized treasuries.” These are money markets funds, packaged into permissioned tokens, for sale on-chain. What changed? Tokenized treasuries are useful in DeFi.

Humans don’t buy tokenized securities, but software needs the tokenized format. And software is eating the world.

We’re providing margin finding to buy tokenized securities. We are growing the stock of on-chain assets that can improve transparency, access, and innovation.

We worked hard to design features that support tokenized securities:

Qualified buyers

Tokenized securities are restricted to qualified buyers. Sweep “stabilizers” lend money to a single qualified buyer. If they need to liquidate, we have programmed them to liquidate to other qualified buyers, or directly to the redeeming platform.

Distribution

We’re deploying Sweep on many blockchains. We can bring dollars to your preferred platform. We can market across the L2 ecosystem.

Primary channel redemption

We are making a promise that we can return all of the saver’s money in seven days. We can’t do that if we are selling securities into small curve pools on-chain. We work with the vendors of the securities to make sure that we can redeem directly to them (the “primary” channel), in an automated process, to sell into the big off-chain markets.

Liquidity, cash efficiency, and maturity transformation

You can think of Sweep as a bank that buys and sells in real time, in an AMM, and then has a bunch of features that allow the “bank” and its wholesale borrowers (money managers) to buy and redeem securities in systems that need up to seven days to settle a trade. This is “maturity transformation”. If we do a good job, we can provide on-demand liquidity for savers, even when most of the cash is invested in securities that take time to move around. So, we are cranking up “utilization” or “cash efficiency” compared with a less sophisticated channel for securities. Maintaining the AMM channel is the most complicated part of Sweep, but also one that adds a lot of value.

We’re buying tokenized treasuries. We are also committing to provide margin funding for other types of tokenized securities and structured products. We just need to make sure that we get adequate equity capital to protect lenders from losses.

Grow real world value

Third, we’re trying to grow the usefulness and revenue of on-chain financial services. If DeFi is going to survive, it needs to provide value for the real economy. It needs to earn political support. And, it needs to bring in revenue that comes from growing value in the real economy.

This last part will be a challenge. To make DeFi money useful in real world projects, we’ll need to lend it out for longer than 7 days. We have to do the hard part of bank maturity transformation. When we get trusted with longer duration money from our savers, we will be ready to offer useful financing terms.

Help us get there. Sweep is open source, community governed, available on many chains, and (unlike our competitors) open to new assets from wholesale borrowers. Join Discord here.

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Andy Singleton
Sweepr

Software entrepreneur/engineer. Building DeFi banking at Maxos — https://maxos.finance . Previously started Assembla, PowerSteering Software, SNL Financial.