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  • Writer's pictureDoron Alter

Signal To Noise ratio in DeFi

During the latest market events, many have been dismissing Decentralized Finance as a category, claiming that “it’s all Ponzi” and expecting it to disappear from the world. It’s hard to ignore this view: The crypto world today is still unregulated and plagued with greed and empty buzzwords, which makes it hard to differentiate between real and fake, breakthrough or scam.

It takes a long time for deep technological innovations to blossom. Machine learning is one example. The underlying infrastructure of the internet is perhaps a better one. It took about two decades from the introduction of the TCP/IP protocol to the development of web browsers and later search engines. Then a few more years until the Internet really took over the world, changing one industry after another.

It takes time to lay down a global infrastructure of protocols that together enable a new realm of possibilities. At first, the excitement and potential is limited to some tech-savvy engineers and a few forward-looking evangelists. But once the first new breakthrough applications are identified, an inflection point arrives where many adopt the new technology, and hungry entrepreneurs drive it further.

This inflection point is also when organizations start to notice the disruptive nature of the technology. Few manage to adapt to the change, but most are replaced by the new generation of companies, who see the opportunity and are quicker to act.

It’s been almost 15 years since the Bitcoin white paper was published in 2008. In a similar manner to the early days of the internet, the early adopters were engineers: groups of computer scientists and cryptographers. Soon enough, the concept expanded beyond Bitcoin to other crypto currencies and new protocols..

But in the case of Crypto, adoption spread fast outside the computer scientists circle, Bitcoin, which was the first "killer-app" for the technology, had an ingrained network effect and quickly grew in value. The chance to take part in the new big-money party attracted all the wrong kinds of people.

This led to the formation of many negative “noise-generating” types of startups:

  • Ponzi scam projects, motivated by pure greed

  • Forced blockchain-tech when there is obviously no need for it

  • Forced new use-cases that no one really needs

  • Good use-case, but poorly managed financially due to greed or lack of professional financial experience, lack of regulation

These types of projects are “noise generating” because they distract from honest novel ideas and their potential to disrupt the financial services industry.

Out of all the potential use-cases for blockchain-based tech, so far the only ones that showed the potential for product-market fit are those related to digital money and finance: Decentralized exchanges, Stablecoins, lending, trading, derivatives, and more.

Over time, the underlying disruptive technology of DeFi will overcome the growing pains.

Regulation will be in place, new trusted brands will emerge and customers will learn to be more careful about who they trust their money with.

DeFi is globally accessible, open, transparent and permissionless, so it evolves very quickly. Further expanding into a larger set of use-cases and categories, like the tokenization of art (NFT), real-estate and other physical goods, DeFi has the potential of growing the entire financial services market, making it more efficient, more global, and more accessible to everyone.


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