Why Decentralized Finance (DeFi) Will Win In The End

Today, nearly all assets are described in simple SQL databases that are wrapped in layers of complexity. We call these onions banks. Over time, as new assets are created, the creators of them will choose whether to instantiate them on the closed system or an open one. My hunch is that this shift has already begun. When Rune wanted to create a debt system to power a stable coin, he set Maker up as a DAO (Decentralized Autonomous Organization—A fancy way of saying a digital system living on Ethereum.)

Investors who wanted to participate in the upside are not able to buy equity in a company. They are only able to buy tokens in a system. That is amazing.

Today, if you want to be a financial technology founder you need to be incredibly good at building a company. Patrick Collison at Stripe, Zach Perret at Plaid and Tom Blomfield at Monzo are some of the sharpest minds out there They are laser focused on fixing the traditional financial system by rebuilding it from the inside. All of them had to jump through thousands of regulatory hoops before they could open their doors for business. It required lots of human and financial capital.

It helped that they were all extremely good at speaking the language of the bankers and conversing with the regulators that hold the keys to the system. They attracted the right kinds of investors who opened the doors that were previously unlocked. They negotiated access to closed source, private programming interfaces that gave them a way to move money around. They burrowed into the traditional system and now they are working their way out.

At the same time, we have the emergence of open source financial systems that allow you to ship a product to tens of thousands of people around the world to help them manage hundreds of millions of dollars. That was unthinkable a few years ago. People in India, Argentina, Australia, Poland and all over the world can use crypto to manage their assets. We did not need permission from Vitalik. We did not need a backdoor deal. We just wrote some open source code and published it on the Internet. This still blows my mind.

Open source financial infrastructure matters because it lowers the barrier to entry for financial technology entrepreneurship. You do not need to be an alien to start a company in this space. You can be a regular person like me. If you have some ideas about how to contribute, you can write code and start sending transactions to the Bitcoin or Ethereum networks in a few minutes.

People are building on-chain businesses that anyone can participate in such as Maker and Uniswap. This is incredibly exciting.

Open source financial infrastructure will win because it enables people to fork off and improve it when they disagree with each other. That is why I am so excited to work on this stuff.

As more founders enter the financial technology space, they will learn from the pioneers of today and build open systems on top of open networks. The best teams will stop starting startups and start growing communities. They will do that because the traditional path of growing an organization is so difficult.

The open source financial system currently holds a few useful tokens and a host of scammy shitcoins. It is a microscopic organism living on the internet. While the prices of the tokens have all dropped, the robust systems they are built on are growing at an incredible rate. You only need a few decades of 20%-a-year growth to turn a few billion into a few trillion.

The internet did not kill many companies. It enabled lots of new ones to grow.

The interchain will not kill many banks. It will enable lots of new ones to grow. The world will shift over.

When it is done, we will have a system that better reflects the needs of the people.