Inevitably Efficient Decentralized Finance
Discover more from The Blockchain Sector With James Bachini
Inevitably Efficient Decentralized Finance
The Blockchain Sector 2023-04-09
Over the last 30 years, we've seen electronic communications almost completely take over, and the idea of handwriting a letter and sending it through snail mail seems archaic.
Email, WhatsApp, and video calls have made communications much more efficient. Over the next 20 to 30 years I believe we are likely to see a similar migration toward digital assets.
The stock market is a good example of an industry already trading on digital exchanges, but settlement is still built around systems like share certificates and legacy banking networks. Real estate is another example, with deeds for a property still delivered as a paper document that is understood and read only by expensive legal professionals.
It's only a matter of time before all these assets move on-chain, and the demand for digital assets is evident. The efficiency at which decentralized finance operates has created a better system that is inevitably going to gain traction.
Eventually, the merits of blockchain systems will be accepted and widely used by traditional finance. We've seen governments already making the first steps towards having central bank digital currencies or digital representations of their fiat currency. The UK is currently researching the potential of what has been affectionately known a Britcoin.
While it's very unlikely that these will be released on public blockchains, there is potential for bridging systems to be used to bring government-run blockchains into the ecosystem of decentralized finance and perhaps even to create commissionless synthetic stablecoins that are redeemable instantly on the government-run blockchain.
I can imagine a world where I have a mobile app, like Monzo or Revolut, on which I can store my assets in cryptocurrency, stocks, or central bank digital currencies and stablecoins. Whenever I want to purchase something, I simply settle that payment through the app, create an online transaction, or bridge assets across to a central bank digital currency, which will be used as remittance for goods and services in that country.
Regarding stocks and shares, there are regulatory hurdles to overcome. While it's a lovely idea for individual investors to be able to speculate on stocks and options for companies like Tesla, it's no secret that the SEC has a reputation of defending Wall Street, and a lot of powerful people are making money because of the closed-gated system surrounding traditional finance.
As an individual investor, you usually have to pay a broker who charges a fee to carry out a trade, you also get front-run by Citadel and that index fund charges an annual management fee. Your returns might not match inflation after all these fees, and a middleman has taken a cut. But you are contributing to the economic machine that fuels growth.
The technology is already in place to create tokenized assets, and stocks and shares could be migrated to modern technologies to provide open financial inclusion for all participants. However, what we first need to figure out as an industry is how to align this with the needs and requirements of global regulators.
This week I’ve started writing up my research notes on DeFi protocols. Here are some examples for:
Timeswap - https://jamesbachini.com/timeswap/
Gammaswap - https://jamesbachini.com/gammaswap/
Renegade - https://jamesbachini.com/renegade/
These are not sponsored posts or shills and I have no stakes in these projects (they are very early stage and don’t have a token). It’s an attempt to create content around what I find interesting in the space and I hope it’s useful.
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