Current DeFi building blocks include standardized smart contracts forming digital bearer instruments, non-custodial exchanges, decentralized lending markets, and on-chain asset management solutions.
Christian Kameir
Blockchain VC @ Sustany Capital
As software and hardware engineers around the world are untangling the centralization of the internet, a vocal portion within the enclave of blockchain-based solutions – generally referred to as decentralized finance – or DeFi for short – has emerged. While blockchains provide the building blocks for reliable information and – to a lesser extend value – transport functions – a layer of middleware to the larger concept of cryptographic primitives mapped by protocols, current developments are largely focused on digitally native assets, and their derivatives. However, a first-principles view on the innovation of financial services will focus on the central tenet of technology: the increase of productivity of human activity, freeing up individuals’ attention — measured in time — that these can assign to leisure activities or higher-order pursuits, such as the accumulation of knowledge. To that end, network technologies, in particular, the internet and consequent emergence of the World Wide Web, amplified human productivity by fueling a surge of synchronous and asynchronous coordination methods of human fecundity, as well as the wider distribution of economic activity in general.
Until recently, digital coordination was mostly limited to the exchange of information, while the exchange of rights and assets still required multiple layers of rent-seeking third parties, frequently curtailing productivity and profitability. Emblematic of these intermediaries are financial service providers that regularly introduce friction to business activities in form of time delays and fees. As research by the Stern School of Business and others has shown, the unit cost of financial intermediation thus far has not decreased, despite…
