What is DeFi? Bigger than web, blockchain, finance and social/business constructs, because it’s all those things combined
A year ago I had the great fortune of attending a presentation by Lex Sokolin, who had just joined ConsenSys with his own compelling vision of decentralized finance, now commonly referred to as DeFi. His presentation can be found here. A year later, and what a year it’s been, we are witnessing the early explosive growth of the DeFi industry.
What Lex did particularly well is to paint the macro picture of the foundation of DeFi and the drivers of its growth, which has proven quite prescient. At that time I was a believer in blockchain for enterprise and Bitcoin as a store of value, but very skeptical about the wild, unregulated jungle of crypto tokens and un-polished protocols with nearly non-existent consumer friendliness.
Since moving back to London, I became immersed in the frictionless world of open banking and mobile finance, which had evolved tremendously in the 12 years I had been away. Crowd-funded fintech startups were forcing innovation in the stodgy world of traditional banking and streamlining the consumer experience. That frictionless world is still some distance from Alipay and WeChat, but considerably more fluid than the corporate hegemony of big tech in the US and its need for growth at all costs while fending off government intrusion.
Then came DeFi. It bubbled beneath the icy surface of the crypto winter, and in the midst of the lockdown, it broke free, like green shoots breaking through the snow before spring arrives. The stems and leaves resembled no other organisms, with names like DAO and liquidity pool and yield farming, as if evolution had suddenly taken a leap forward. The pandemic had zapped these living things and new kinds of life were emerging in a world trapped at home (“zap” is a term in DeFi, by the way). And the green shoots were all over the world, with no particular locus except the World Wide Web.
Having now participated in this new world, I am convinced it is the next stage of our collective evolution — not only in finance, but in the ways we spawn and launch innovation and govern ourselves. Right now it is still a field where bankers are throwing wary glances and VCs are trying to establish a position of importance, while Initial Exchange Offerings and new models of money and business are birthing themselves and synergistically influencing each other, twisting upward at alarming speed toward a world beyond our current world.
Some projects survived from ICOs in previous years, and have grown stronger as they continue to invent platforms and re-invent themselves. Others are young, leveraging the momentum in new ways, building communities and figuring out what decentralization really means. Two projects of note: yearn.finance, self-launched a few months ago by a single developer and now a leading platform with ingenious yield-generating mechanisms; and Ampleforth, a VC-backed experiment in money based on elastic supply, like a new form of gold that aims to become the world’s central bank. (Full disclosure: I invested in both.) But there are scores of others, and the foundation based on old Ethereum will itself mutate as alternate chains and protocols are developed and released at dizzying speed.
We are at an inflection point, a point of generational change. It’s time to pay attention.
