Innovations in various global industries seem to be developing faster and faster. This makes sense because innovations in one sector ultimately make innovations in other sectors cheaper. When innovations become cheaper, we can of course expect them to be used more and more frequently.
The advances we’ve seen in the world are all backed up by silicon and computation. Whatever time-saving invention you’ve come up with, it’s probably better with a chip in it, though funding seems to be excluded from this hard and fast rule.
David Hoffman is the co-founder of Bankless, a content studio with a newsletter, podcast, and YouTube channel that focuses on banking-less education. He will chair a discussion titled “Trade Secrets: The ‘Triple Point’ Bull Case for ETH” at CoinDesk’s Invest: Ethereum Economy on October 14th.
Regulatory burdens and walled gardens between financial institutions are potential culprits. However, it is not obvious that removing these barriers would enable the level of innovation in industries where chips and software have been successfully integrated.
The reason financial industry innovation seems to be moving at a snail’s pace is the lack of a developer sandbox to experiment with. There are no startup studios where programmers can try to turn an idea into a product and learn lessons in the process.
When financial research and development is shifted to the developer side, innovation costs drop, which leads to an innovation explosion. Once the keys to the kingdom are given to those who write code, thousands of global developers will battle for the best way to add to an industry.
This is what Ethereum offers the world: a place for financial experimentation to mature into consumer goods. DeFi, or decentralized finance, is both the place where financial products are tested (often in production), as well as refined, finalized and shipped to the 4.5 billion users available on the Internet.
While the rest of the financial industry is running out of experimental oxygen, DeFi is simultaneously providing both the tools needed to make products and the consumers ready to consume them.
See also: Lex Sokolin – The Revolution You’ve Been Waiting For: Fintech + DeFi
Innovation occurs when the costs of iteration and experimentation decrease.
The inadmissibility of Ethereum creates an environment for anyone who wishes to learn Solidity in order to access thousands of potential users and potentially billions of dollars in interested capital, as long as their product is worthy. It also increases the attractiveness of Ethereum as a financial platform for the end user, who may see Ethereum as the frontier of financial innovation.
Innovation occurs when the costs of iteration and experimentation decrease. As a platform, Ethereum enables the creation of an inexpensive developer sandbox. Due to the nature of open source software platforms, anyone can add knowledge and software to the shared knowledge library through mechanisms available to developers. Ethereans call this “money legos”. When someone creates something important, any other developer in the sandbox can access that construction and use it in their own product.
We saw this especially with the YAM system, which integrated components from the rebasing mechanism from Ampleforth, the governance module from Compound, the treasury from Yearn and the participation agreement from Synthetix as well as the universal “liquidity mining”. As a result, YAM was a product that arose from the repurposing of workers from other protocols to create a novel product. By and large, the crucial basic element of the ERC-20 token standard was used by each protocol mentioned.
YAM is unlikely to solve a significant financial problem, but it is an example of experimentation for the sake of experimentation that will always be available to future builders in the DeFi space.
There is no shortage of opportunities DeFi offers developers who want to tinker with financial toys that offer the opportunity to evolve into a consumer product.
See also: Michael Casey – Money Reinvented: COVID-19’s Lessons in Innovation
In an industry where development costs are not much higher than the time invested, we can assume that a thousand experiments will result in dozens of changing products around the world, with many runners-up, honorable mentions and complete disasters.
One thing is certain: experimentation will continue.