Meanwhile, some real magic is finally happening on the Blockchain
1, Unlike the 2017 Sci-Fi charade, blockchain tech works now — works simply, and works well.
2, There’s a whole new economy brewing and bubbling underneath, and I predict it slowly replaces the existing as we shake off the shackles of banks and create new societal freedoms.
At a time when the stock market becomes more and more decoupled from reality, from the actual economy driven by our work, many are questioning the value — and even basic validity — of the financial infrastructure and economic game being played.
Even those who have capital to deploy are at a loss for how to behave, seeing their funds and buying power devalued by extreme money-printing as they sit on the sidelines, and with nowhere else to go but into the corrupt and inflated stock market.
After a long 10 years of development, useful applications are finally beginning to take shape offering more than simple value transfer. Decentralized finance, or DeFi, is garnering a lot of due attention for beginning to lay down the cornerstones of what will eventually become *completely decentralized banks*.
What Is A Bank?
A bank is a financial institution that takes your money, lends it to another for profit, and charges you for the privilege. That’s a nice racket, eh?
Certain banks don’t even need you to deposit your money into them; they get their funds directly from the government or a “central bank”, i.e. — from entities created to represent you and the wealth of the nation — and lend that out, making a profit for themselves.
Make It Fair
I’ve often toyed with the idea of changing this paradigm such that the value generated from the activities of banks, facilitated by what is nothing more than the wealth of the populace, gets distributed as dividends back to people directly.
Making money (energy/resources) available _now_ to create the means to generate and return it _later_ is a desirable function in society, a natural way to accelerate progress. While it made sense to allow those fulfilling this function to benefit from it in the past, there’s an argument that liquidity and credit are more a public utility (like water and electricity) or a natural resource (like oil and minerals) than the makings of a reasonable for-profit enterprise.
Loaning money from a bank is, in essence, risking the wealth of the public; certainly, some “too big to fail” banks, and even corporate borrowers, never have to repay their loans, directly impacting the wealth of those of us not as close to the money-spigot.
If it’s our wealth that’s being risked, why should we not get the reward?
Fortunately, this is one issue that we’re not going to have to fight for, because technology has just made centralized banks obsolete.
“Money Legos”, or: Bits and Pieces of Bank Coming Together
Ok, ok — that’s quite the statement. Surely, it will be some time before we can completely let go of banks in their current form. The blockchain DeFi trend, however, has already brought about projects that, with simplicity not seen even with the best of bank UXs, allows everyone to become their own bank. And not only in the “look ma, no checking account!” Bitcoin wallet sense, but in a way that is more complete.
As a participant in any of these completely decentralized, Ethereum smart-contract based protocols, one can set up or join “liquidity pools” of funds, *becoming a microbank and earning money* through allowing their funds to be of service for:
【】 Asset exchange
【】 Collateral for their own borrowing
And much, much more. The decentralized, modular, smart contract nature of these Ethereum-based projects is that they’re extremely easy to stitch together, and in a trustless, transparent fashion, to create novel types of applications bringing together — for example — stock lending and exchanges with an insurance layer managed by a distributed governance.
All of these smart-contract-lego-pieces speak the same language to become infinitely combinable, allowing identity and money and votes and provenance and assets to flow almost-frictionlessly.
With every click on an app involving a smart contract taking a few seconds to confirm, my mind runs the equivalent background scenario — with banks and insurance agents and lawyers and government bureaucracy — and breathes a sigh of relief. Oh, sweet sweet freedom…
OK, Here’s a Real Example of a Novel Service
And my favorite to date: Nexus Mutual.
Not actually a bank, but a decentralized, collaborative-styled, member-owned insurance company. Every member (costs $0.5 to join) can send in Ethereum coins to a shared pool to serve as funds for the insurance company, and can also insure themselves against the risk of their own online activities (for now, before they expand into the real world).
Members receive NXM tokens against their pool investment, which they can stake on decisions when other members make insurance claims, or use to vote when decisions about how the pool should behave and develop further need to be made.
Members can propose their own changes, or become a nominee to the higher council of people who oversee some of the deeper operations of the network — all completely transparently, of course.
And so, with a few clicks of the mouse, one can send their funds and become part of an Internet-age, disintermediated, fully transparent insurance company.
When the period of insurance coverage people paid for ends without damage or loss, members receive a proportional part of the earnings.
Cool idea, right? Well, it’s already more than an idea. The pool has already paid out money to people making valid claims, and is insuring people for more than $9m USD at the time of writing.
Everyone Becomes a Financier
Ever since banks and general convoluted financial trickery have risen to fame, there’s been a backlash. Specifically, against people who work as financiers, navigating the complexities of these systems and siphoning money out of them in ways obscure to the common folk. Many have suggested the role be done away with completely for the health of society!
The solution this new set of technologies innately advocates for goes the other way. Instead of removing the financiers… everyone becomes a financier.
Yes, yes — I hear the collective “ughh”. It’s going to be painful in the beginning, but we’re likely going to have to get used to it. This same process, where the population at large inherits a role and capacity previously reserved to a select few, has happened many times throughout history.
It used to be that only the lords and kings handled the wealth of the nation and dealt in trade.
It used to be that only the clerics knew how to read and passed on knowledge.
It used to be that only journalists published their observations and commentaries.
But now we’re all trading on Robinhood, a modern app exploding in popularity promising “investing for everyone” — and telling all of our friends about our favorite stocks on social media. (Even though it’s nothing more than the same corrupt, money-printer fueled stock market recycled into a fancier UI for the TikTok generation.)
But I digress. The point is, just like with the written word, we’re going to have to be much, much more financially literate even for just a chance to survive modern life — and that’s a good thing. For far too long, the majority’s economic ignorance has been used to advance and petrify extractive policies, relying on centralized loci of financial control, making for our era’s divide between have and have-nots, between landowners and (wage) slaves, between those who concentrate power and wealth among them and those who toil endlessly to generate it.
The blockchain DeFi revolution is going to incentivize people to learn how to manage their finances without middlemen because it’s going to be hugely profitable for them. In fact, it’s already doing so for the brave ones who have ventured into these new realms. Even without the transparency, without the open and collaborative features baked into the technology — using one’s own money in ways previously reserved for the elite is fucking incredible and hard to resist. And when everyone’s in on it — even Azerbaijan is at 99.9% read/write literacy by this point — we can take the financial temples down and practice at home, outside of the grasp of those who wish to control and extract from our basic capacity as homo economicus.
Sign me the fuck up
Yeah. All you need is an Ethereum wallet, like the super simple browser wallet MetaMask. Throw some ETH tokens in there and you’re ready to go; no need to identify, register, wait to be verified, or whatever else. Just find your favorite app, smart contract, or money-lego-castle, and play with some buttons. A few I like are:
【】 Uniswap: add your ETH (or other ETH-standard tokens) into a liquidity pool. Earn fees when people use it for exchange purposes. You keep your initial money — it is never risked — and rest as you see more added into it as the money serves others.
【】 Compound: add the tokens you want to hold onto into a pool that you, or others, can borrow against while you earn an interest 1 or 2 orders of magnitude higher than what a bank will offer you.
【】 Nexus Mutual: holy fuck someone’s finally solving insurance ahhhhhhhhhhh
【】 1inch.exchange: trade ETH-standard assets, finding the best prices from all over the ecosystem and combining a few sources into the cheapest trade.
【】 New financial services we can’t even fathom yet: indeed.
This is just the beginning, and we’re mostly recreating the existing stuff at Internet-speeds and with no useless intermediaries. Once we have the basics covered, a slew of new combinations of legos, of ideas simply impossible before these technologies came into play, are going to become available and make the old economy, based on institutions, ideals and morals founded centuries ago, seem laughable.
Time to transcend a paradigm. Join me in the DeFi revolution!