A new wave in Crypto has begun and its buzzword is DeFi. Defi stands for Distributed Finance. The idea of distributed fiancé is that financial institution can be created run by computers, blockchains and rules which anyone can access free of gaining permission or having to show trust or be trusted and these cyber financial institutions run on a network of computers anywhere in the world along annarcho-capitalistic lines designed to resist outside interference.
A nice dream (perhaps,) now a tangible thing that exists.
It takes forever to open a bank account and many a derriere has to be pecked. Then you can expect a regular flow of demands to prove you aren’t a drug lord or a insurgent, to carry on using their services. It took me much less than 30 minutes to buy some stable coins and deposit them at compound.finance and have them earning me, well its not clear how much exactly, but lets estimate 7% a year. I them sent no electricity bills, passport photos, drivers licenses and had no tedious forms to fill out or phone lines to queue on for 30 minutes or more to chat with someone in Bangalore to whom Mr Clem’s ‘phone call is very important to.’
Boom! Instantly I was earning interest and I could see it rolling up in real time. However right now this technology is definitely v1.0 (1. Ooooh!) and a messy thing. Interest rates move from one minute to the next, the stable coins aren’t really stable when you are talking 7% a year and the stable coins can oscillate around a 2% range in a day. The Compound Token, which you earn by participating’ is a return booster but its value skids around all over the place and is impossible to predict and when it comes to knowing how much of it you will recieve in the next year it is impossible to guess. 7% or whatever it will turn out to be, just doesn’t seem enough return for all the variables. Its apparently safe, but like a theme park ride it feels as scary as hell when you have $10,000 locked up in it. Meanwhile Ethereum’s transaction costs have gone nuclear because of the runaway success of Defi, so actually moving money around is prohibitively expensive to unless you are dealing in say $30,000 or more.
But…
It works.
It’s a Model T and it sets the trajectory of a future of financial services run from blockchains via smart contracts that will cut down or morph financial institutions as Amazon cut down and is morphing retail.
It will take 30 years but when Apple and Microsoft appeared is was going to take 30 years for them to change the world too.
If you wished you had caught Apple’s, Microsoft’s, Tesla’s, Google’s IPO then you have another chance at catching a world changing wave extremely early. The Bitcoin at 7c moment for Defi was about 6 months ago, but it is still early days and that is why there is a bubble on, but one still only in its initial early stages.
My strategy is to be in on governance tokens now, just for a bit of fun in the initial run, then to buy (and trade if possible) the next series of bubble and busts that always follows a tech revolution like this. Buy and hold is probably the best way to go. Buy and Hold all the cool projects that you can actually play with. The scammers are undoubtably on their way but the real deals amongst the oncoming cowpats will be huge financial success and the only thing you need to do is skill up and separate the real from the scams.
Covid has changed the world and in the coming years the pace of change will be accelerated because of the dramatic aftermath brought about by the global shutdowns. The world will have to go ‘risk on’ to recover and the winner of those races will undoubtably grab on to the fastest and most dramatic technologies to try to drag themselves from the quicksand of economic depression. Defi and Crypto will undoubtably be part of that and in the world that now talks in trillions of dollar, these developments will be hugely valuable.