What’s the Use of Defi? – Trustnodes

What’s the Use of Defi?


Defi meme

Tokens are coming out daily left right and centre for one use or another with people now facing that tough decision of where to invest some savings.

It used to be simple. You buy eth or bitcorn, hodl, and then dream of these coders doing all these new things in the years to come or in the case of bitcoin, pester merchants before even that was taken off but they can still reee at Fed.

Now you have to wonder whether to take sushi and yeth it, or leave it there and put new eth into y, or get uma instead, and now even this tron thing has some sun token to copy monkey ‘defi.’ But what’s the point of all this, is it just a big useless ponzi game, or are these new actual businesses with something that gives all these new tokens actual value?

Uniswap has earned about $3.4 million in fees across some 200,000 transactions in 7,000 pairs.

Coinbase has not yet IPO-ed or ICO-ed or Defi-ed, but it’s said it’s valued at $8 billion. That valuation obviously comes from fees, revenue and profits.

As Uniswap has overtaken Coinbase in volumes, why shouldn’t Uniswap be worth $8 billion?

Well because the Uniswap dapp itself doesn’t actually take any fees. They all go to liquidity providers. So a better question is why would one use Coinbase instead of Uniswap when the latter is technically free really if you set up the bot system appropriately and if you ignore the eth network fees.

Uniswap doesn’t have a token either. Hence this Sushiswap that basically argues a global and open crypto exchange not only is possible, but can be owned by you, the public, through arguably one of the fairest token distribution so far as it’s just given to liquidity providers.

Around 0.05% of the fees then go to sushi hodlers – 0.25% goes to liquidity providers while Uniswap gives the whole 0.3% in fees to the latter – and thus you have a company basically providing a service with revenue and profits and so is subject to traditional evaluation, the difference being no one paid anything for the token share. Well, unless you want to be philosophical about it, but the users just got ownership of a potentially very profitable business.

Because there is a service – exchanging assets – through which you get revenue and profits, we have here one of the first fully digital and tokenized proper business owned by the people, including Trustnodes because we finally got around to test-running this yield farming stuff.

What about all these other tokens. There aren’t new businesses popping up everywhere are there, some of them are just useless no?

The New Financial Center

Uniswap is cool, but also kind of boring in some ways. It doesn’t have leverage. You can’t borrow from someone else based on collateral to engage in price discovery by longing or shorting.

So we have Compound and Maker and some other ones, including Aave, with the latter in particular allowing uncollateralized borrowing through flashloans.

All these are also businesses in the proper sense of the word, they’re just fully digital running on code through ethereum smart contracts.

People want to borrow either for leverage or to temporarily unlock liquidity without selling the asset, or in the case of flashloans because they’ve identified an arb or profit making opportunity, but don’t have enough liquidity themself so pay the fee to in this case Aave liquidity providers.

So far it’s pretty simple stuff, but now we’ll get a bit more complex. Maker for example isn’t ‘borrowing’ in the traditional sense of the word, that’s just a side effect of it creating a trustless dollar pegged token.

Because this is trustless, it means everyone has to take part in facilitating this peg, and therefore in the process a new company is created but with very different new positions or roles which either didn’t exist before or weren’t as prominent.

The liquidator can be a full time job. Someone that sits there and sees who is close to being undercollateralized, and therefore they can get their eth for cheap or the dai for less than a dollar.

Through numerous other likewise task requirements, a whole market is created or in the company comparison, whole new on-demand job positions.

That the market values this dollar pegged token is unquestionable because it has already given the answer with half a billion dai currently circulating.

That can also produce quite a bit in fees which then go to the token holders, but why not use tether instead? Because why on earth would you want to pay fees to some company when you can take a share of those fees yourself by hodling MKR?

Dai was the first, but now there’s so many tokenized dollars with sUSD in particular relevant because here it gets even more complex.

sUSD is dai, but it facilitates the peg to a stock or an index or the price of gold. So we have three levels here instead of just eth/dai. We have eth, susd, and then say tesla. If tesla rises, they can claim that new price in susd, and the susd in turn claims it from the eth collateral.

Because this is far more complex as tesla can be just one stock among the whole stock market, maintaining susd pegged to the dollar is very difficult.

Again all this is code, owned by SNX, the token holders. They’re clearly providing a service of trading stocks, commodities, cryptos, and sooner or later bonds too maybe, an art index perhaps, there’s already a defi index.

So we have revenue, profits, and a proper business, but the smoother running of this business depends in part on another one, and particularly for sUSD.

Curve, a mindblowing dapp in many ways which we have no clue really of how it works but it uses curved graphs mathematics in its protocol algo to increase significantly the market’s ‘sensitivity’ or incentive to act when there are even very small price movements in say sUSD.

Because sUSD has so many factors at any one time that affect its peg, it can be very volatile at times without Curve. With Curve, it is pooled with dai and other more stable tokens, and by individuals or the market doing their job through the profit motive, sUSD is stabilized considerably.

Curve does the same for wBTC and renBTC as well as other asset backed pegged bitcoin tokens, but it is probably sUSD that gave rise to the whole idea out of presumably need.

So again thus we have a whole business, performing a wanted service for the market, for a fee, which is its profit and thus what gives CRV value.

Another one to note is a new area that has come to our attention because of yeth. Here the service is basically providing bots to the market through what they call strategies.

So you put eth in the smart contract through a just click website interface, and now the smart contract code, or the bot as we’re calling it, turns this eth into collateral on Maker to get dai, then sends that dai to the Curve Y pool where then it gets CRV tokens which are being distributed to liquidity providers, in addition to interest for its job of stabilizing sUSD, and then those profits and the CRV are converted to eth which is given to the depositor.

Pretty cool, and we covered it fully yesterday, but yETH is just one bot. You can imagine yourself just how many such bots there can potentially be providing you a service, which again means revenue and profits, and therefore we have a pretty nice business owned by us all.

These businesses are just starting out. Like Bezos with just one laptop in the 90s, so too some of these may be just one laptop.

Like for Bezos plenty thought it stupid to have an online bookstore, so too if you go down the street people would tell you all sorts of things to explain why there’s no way they putting any of their hard earned dollars in these ridiculous things.

And maybe they’ll be proven right. Pet shops did fail and some of these probably will fail, but it is difficult to imagine even today why you’d want a paper certificate of a stock, instead of a token, or why you’d pay fees to a company instead of to yourself, or why you’d just hodl a stock like tesla, instead of putting it to work, or why on earth you’d give it to a bank to hold and then that bank puts it to work by say lending it to shortsellers and gives you nothing in return.

A digital tokenized future with an open financial market owned and run by the people, by the market and the entrepreneurs, appears inevitable.

Yet it is easy to see why plenty think otherwise if they’re even aware of what’s going on. The network needs some time to scale, to be able to handle even current digital finance, let alone tesla. It needs to be strengthened as well. It needs to get out of the, well it’s pre-dial up stage really. It needs to basically become more like today’s wi-fi which doesn’t often disconnect anymore, than the wi-fi of a decade ago when you were lucky if it held on for a few minutes.

But if and when it gets there, then you’d think all global finance would be running on this thing, or at least a great part of it, and many of these newborn businesses may by that point also be touching $2 trillion in today’s money.

Nonsense? Maybe, yet the benefits are so fundamental and so self-evident that it is difficult to see why it wouldn’t be the case.

For something like bitcoin, for example, one can easily have the view that the state or the central bank should have a role in the management of the monetary unit of account.

For something like these defi dapps, however, there isn’t really any controversy or one can’t easily see any split opinions. There can be points on how they can be improved in the views of whoever, but not fundamental points about their usefulness or how it is just better.

So it may be crypto has or soon will gain a very powerful ally. Pension funds. Naturally they have to tread very carefully and slowly, but to them the ability to perform many of the functions that today have to be performed by banks without rewarding them much, if at all, must be a dream come true.

If they can give this money to a bot, or far more likely a set of bots, and then this bot goes off to work for them, in a way you can fully see what he is doing and how he is performing, and you don’t have to first give your assets to someone else who you have to trust to not cheat, defraud, or far more likely to not keep 99.99% of the profits for themselves, with this bot not controllable by anyone but the code, then presumably the only worry for Pension Funds and other investment houses would be: who to hire to do all this stuff?

Now there is one criticism that can be made, these are ‘just’ finance, but finance has and will continue to revolutionize the world because everything runs on it.

So this isn’t just finance, this is the global economy itself, at the dawn of being disrupted, in a way that will transform the world and fundamentally, generally vastly for the better.

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