The Path To Decentralization
We want to celebrate those shaping the future of the Open Internet and collectively pause, reflect, and initiate constructive dialogues around its future and real-world application.
Businesses overusing the term have hollowed out its truemeaning. However, blockchain is different, it’s a revolution in its original sense and genuinely rejects the status quo to promote systemic change of foundational ideas, concepts, and mechanics.
However, this is not a technological revolution. It’s the technical pairing of a uniquely human concept that stretches back millennia. Thousands of years ago, Moses decentralised his governance over the lost Israelites by constructing a council of elders. In 2008, we saw the decentralization of finance with the advent of Bitcoin. Fast forward to today and we’re seeing the human need to defend our systems and infrastructures with decentralised technology.
Whenever there has been technology and innovations with capital throughout history there has also been avarice and inequality. Human instinct is not always a positive force for humanity.
Blockchain, DAOs, and web3 can become the counterweight to shelter us from the worst sides of human intention - to keep us from biting the apple that removed us from Eden.
The systems we’re building are born adversarial. Distil that to its simplest form - to design decentralised systems that protect us and our interests without succumbing to corruption.
The narrative is changing. It’s much more than making a buck, it’s a cultural shift to value-first transformation which we echo in our own investments at Eden Block. We back the visionary, most technically ambitious, that simplify the truly complex with deep integrity.
Every founder we’ve ever written a cheque for holds a relentless vision to transform the world for the better. That human concept of what we seek to achieve has to permeate through the deeply technical discourse that surrounds and sometimes shrouds this industry.
Teams need to articulate their vision in a way that resonates with real-world usage and everyday people and that’s more important than the product itself.
Narratives are a growth vehicle for everything you will try to build in this space. Without them and a proper translation, you’ll stay confined to the pockets and corners of crypto.
Perception of value is created from good narrative and this space is being defined by elites, gatekeepers, and often oppositional outsiders. However, if you don’t like or agree with the conversation you can always change it.
Decentralisation is a global movement and everyone can play a meaningful role. This revolution needs active leaders, not passive arbiters, to ensure it stays true to its course.
The more stakeholders we have in these networks with skin in the game, the stronger the more defensible the movement becomes. The apple is not centralisation, but the misinformation around memes, fads, fantastical elements of blockchain that hijack the narrative and dilute its true intentions.
This won’t be a quiet revolution, it won’t be quick, and it won’t be without friction. It's only the beginning, but everything will change.
Let us paint a financial picture. Imagine billions and billions of everyday customers with the choice of thousands of efficient, accessible, specialised, and intuitive products. These solutions are market-specific, have huge amounts of liquidity, are supported by a seamless electronic architecture and are at the forefront of innovation.
This is not the future of DeFi, but the current condition of its competition. Championing DeFi means unseating an ever-innovating space that’s guarded by the global goliaths of industry.
In 2021, DeFi is not even close to rivalling its competition. By all comparisons, it kind of sucks. We’ve made huge strides in a short time and seen some truly exciting shoots appearing, but we’ve only built a prototype and it’s not market-fit for everyday use. When you look at real-world usage you see that the systems buckle under scale, the UX is poor, fees are high, the risks misunderstood or mismanaged, and adoption is fractional.
Right now, it’s an introspective space that’s producing yield for those that are familiar with navigating it and risks becoming an echo chamber for the already converted.
And yet, it's critically important that it does succeed. That the ideologies, benefits, and visions that cryptocurrencies were built on are recognised through DeFi. Because without DeFi, Crypto will not succeed. Finance and money are inextricably linked.
Cryptocurrencies will be forced to compromise and sacrifice their control if they continue to lean on traditional financial structures to support them. Their intentions for decentralisation don’t align.
The financial systems that exist so efficiently today do so for very unequal reasons - they work brilliantly for the financially fluent countries and those in power. DeFi is a paradigm shift to an equal and decentralised system. It’s a threat to financial hegemony.
The fundamental ethos is to open the financial system up to everyone and give them the ability to participate.
The rallying call was that DeFi needs to do finance better outside of Crypto. We’ve had the first DeFi Summer, the wave of arrivals, cash, and scaling solutions, but now it’s time to professionalize the space and compete for real-world use cases in a compelling and competitive way.
We need to be more accessible. There’s a deep moat of knowledge and persistence that prevents everyday customers from comfortably adopting crypto and DeFi. The community almost revels in the complexity, infancy, and risk of the space, but fails to show itself as a simple solution to real use cases.
We should be looking at designing and de-risking solutions that meet the customer’s needs and put their experience at the centre of everything. That's where we should be reverse engineering ourproducts from. We need to enable DeFi to extend further than crypto.
The blockchain narrative has been so polarized that it’s deepened existing misunderstandings attached to the space. For too long it’s been defined by those outside its understanding.
Its media is still very much in its infancy and trusted voices are yet to establish footholds in the space or the proper bridges to journalists. News will often break behind the knowledge moats of The Block, CoinTelegraph and Decrypt and ripple out to mainstream media.
These outlets tend to narrow their reporting to a menu of sensationalism, crime, celebrity fanfare, Elon Musk, wallet breaches, and scandals. The spokespeople they lean on often hold positions in mainstream finance, currency, policy, politics, and businesses with agendas to discredit blockchain as a counterpoint to their own interests.
The narrative around blockchain is not inclusive, it’s not accurate, it’s obscured by sensationalism, and dominated by the indecipherable or the misinformed. Narratives are extremely powerful in adoption and the combination of a hyper-specialized echo chamber and a sensationalist fanfare are undermining the opportunities that blockchain will bring.
If you don’t like the narrative, change the conversation. Brands, publications, and figureheads have to challenge misinformation and act as trusted filters and confidants in the space. We need a rallying cry for those champions of the industry to actively create a presence.
We do not want an echo chamber that divides us. It jars with everything it stands for.
Now that the narrative is shifting towards geopolitical posturing, regulation, policy, and mainstream adoption - journalists will be mandated to become authorities in blockchain and will need wells of information to tap. Who gets a space at their table is up to who puts themselves there.
If we want to make the space truly democratized and participatory we need to give the people that represent it a mouthpiece. How many businesses are maintaining their ties to the communities that propell them and creating their own messaging frameworks, value propositions, and reasons from the communities and customers that use them.
There are undeniably different starting points in this complex universe. Until recently, it was defined by a handful of major works and theories and almost entirely unintelligible and unnavigable space for newcomers. Bear in mind that you're sharing the conversation with those that understand what quantum blockchain and lattice cryptography are.
The narrative is moving away from the seminal pieces of literature that originally defined the space and towards mainstream adoption, institutional backing, and what that all means for real-world everyday use.
However, there’s no clear signposts for new arrivals to wrap their heads around how to mint, trade, mine, and move into specific sectors to understand the space. That needs to change.
Regulation of some sort is inevitable and that doesn’t mean centralization. Earlier this week we discussed the need for natural hierarchies in more depth. The rhetoric and lobbying that will build around regulation is avoidable, and relies on cementing the foundational values, reasons, and ethics behind blockchain.
Brands need to anticipate the blockades that are going to be leveled against them and prepare in advance how to tackle them. Don’t be left untethered when the political turmoil arrives. Which companies and thought leaders will be the lighthouses that people turn to?
Get people in the room that don’t know your brand and find a common tongue to communicate. Know how your brand communicates collectively and make the entry points accessible. Lean on your community to define your brands USP and see if it's effectively translated to your Great Aunt and your community.
What do people say about your brand and story when you’re not in the room? That’s the purpose of a strong brand. To constantly communicate your story, purpose, and value to your customers.
Two years ago it was almost non-existent. In the space of twelve months, the DeFi landscape advanced from obscurity to attract over $100bn in smart contracts. Between April 2020 and May 2021 markets recorded:
It took approximately eleven months to travel from 100,000 unique addresses to one million. To travel to two million it took 142 days, and just 72 days to crest three million. Growth is accelerating despite a draw-down in May.
DeFi was an uncharted territory where pioneering financial engineers found the freedom and borderless space to build, cobble, redefine, and innovate.
A playground for financial lego. One that’s started rapidly maturing as talent and intellect leave traditional realms of financing to follow the steep interest and opportunity in DeFi. Their job - to professionalise the space for larger adoption.
The next wave of builders are focused on bridging, UX, design thinking, security, and wider utility. They’re asking how they take the early building blocks and secure the space whilst making it accessible and comprehensible for non-natives.
We’ve come an enormous way and it’s moved beyond its greatest risk - an existential threat to its existence - but, we’ve only scraped the surface. Around 3% of Ethereum accounts have interacted with DeFi.
Those most au fait with crypto are still barely engaging with it. Building a bridge to them is one thing, crossing the gulf to the masses, is something entirely different.
How do we make DeFi easier for everyone? Decentralizing finance seeks to relinquish the control and influence of traditional third parties in financial models and open them freely, securely, and with trust, to everyone.
However, its wider adoption is being prevented by its lack of simplicity and signposting. It’s a pocket niche that requires a polymath level of understanding to navigate. An understanding that few hold.
Focus is shifting to building middleware and infrastructure that layers complex protocols into products that are completely unbeknown to end-users. Blockchain should be transparent, it should be investigable, but it shouldn’t limit its benefits to those that understand its mechanics. I don’t need to know how TransferWise or eToro works to know how to use them.
DeFi is open finance in its truest sense. Its composability allows protocols to be uniquely meshed together to create composite financial services. It’s open-source, permissionless, and can be used by anyone.
That raises several questions. First, does that impact how businesses in the space protect their services and the value their protocol creates for stakeholders and communities?
The panel spoke at length about this, but defensibility is best achieved by cultivating a valuable space for innovation and attracting people to it - openly. Communities and customers will tie themselves to the brands leading the charge in developing the best experience and value. The biggest risk in this space is the indifference of the customer.
Perception of trust, security, and value are your defensible moat. It’s the VCs that back you, the media that recognises you, and the communities that evangelise you that will make you a beacon for business.
Secondly, the first signs of institutional interest and regulation are creeping into DeFi, a space created outside of the usual need for regulation with protocols of mutual trust, peer-to-peer trading, and privacy.
Now that institutions are joining the party, they’re whipping demand for greater regulation and sophisticated security.
The protocols themselves are built on open blockchains, but jurisdictional clampdowns on access to the easier interfaces you engage them through, have started appearing. Something to watch.
A big question that featured during the panel was if there will be a winner-takes-all scenario. It’s a big space that can house a lot of big players. In such a fragmented and young landscape, where the movers, shakers, and very tectonics are still being decided, it’s unlikely that a single conqueror can emerge.
DeFi’s composability makes it a waterwheel of unilateral growth where one protocol benefits from the improvements of another. Ultimately, the end-user benefits from DeFi working as an ecosystem with better bridges that move both ways seamlessly and across multiple chains.
Bear in mind that we once imagined there would be a single stable coin to rule them all…
Is DeFi the real driver behind financial equality? Only time will tell if incentivising a stake of ownership in the protocols DeFi is built on works in creating a fairer, egalitarian, financial system.