The best part of DeFi is that it provokes us to re-think a fundamental question. What is money? Money is a social contract. It has value because as a society we all agree it has value. Same as societies recognize fiat money that backed by government credit has value, if a community agrees a digital currency governed by an algorithm has value, it then has value and can be used as medium of exchange.
The Backdrop
If you think about it, it is not a coincidence that DeFi gained traction in recent years. We are at a strange time in history. From a monetary policy perspective, the policy makers are running out of tools in their toolbox to stimulate economy. Increase rate or not, it is more like a finger in the air. The central bankers will not know the effect of the policy until many months after. From a social economic perspective, no matter how much money you print, the poor becomes poorer and the rich gets richer. The wealth (re)distribution is simply not working. The frustration and resentment keep building up. As a society, we urgently need alternative solutions to the increasingly acute social and economic issues that we are facing.
The Catalyst
Then Covid came along. It is the perfect catalyst for all things digital. When developers are locked indoor for a year, look what they have built. I am amazed by the sheer volume and quality of blockchain projects came out in 2020. So the bull market is really not all hypes. It really is supported by significantly improved fundamentals.
Perhaps more importantly, the global pandemic prompted us to think deep and re-evaluate the status quo. If we do not want to settle with what is available, then it is time to come up with something new.
Challenge the ingrained system is hard work. But staying put is becoming unacceptable. The DeFi community knows it, so does the traditional finance community and the governments globally.
The DeFi Pioneers
I originally want to name this section “The DeFi challengers”. But I quickly changed my mind as I feel the word “challenger” is a bit hostile. For these DeFi projects to gain mainstream recognition, it requires working with key stakeholders in the existing ecosystem. Here, I want to share two really cool DeFi projects that I am following.
Terra essentially is a new system to print and distribute money. It is a monetary platform governed by programmed rules. Unlike the existing mechanism which often falls behind the economic activities; Terra can adjust money in circulation based on the real time changes in supply and demand.
Here is how it works. Take UST (UST is the USD version stablecoin on Terra) for example, when more people want UST, the unit value of UST goes up. To bring the value back down to $1, Terra will increase UST supply. When the demand of UST decreases, the unit value of UST goes below $1. To bring the value back to $1, Terra will decrease UST supply. This is achieved by the Terra ecosystem coin LUNA. When the price of UST goes above $1, investors will swap LUNA for UST and sell UST to dollar to make a profit. The newly added UST will help bring down the price to $1. In times of contraction, investors will swap UST for LUNA thus decrease the UST in circulation and therefore increase the unit value of UST. For more information, please check out the introduction video.
Terra is currency agnostic. It can power any currency, with USD, KRW, MNT, and the IMF SDR currently available.
With a complete transparent and rule-driven monetary platform, we might never need to worry about inflation and deflation. It could be just the answer to a timely and accurate monetary policy, for once!
If Terra’s ambition is to reduce price fluctuation of existing stablecoins, Fuse empowers everyone to create their own stablecoins and based on that their own economies.
Businesses can build their customer loyalty programs by using the Fuse Studio to issue customized coins. In fact, it takes current loyalty schemes a step further by enabling the businesses to run a complete open and transparent program/community economy at a fraction of current cost.
If you are not keen to create your own coin yet, you can still use fuse wallet to transact mainstream stablecoins to save time and money.
The most successful case study on Fuse network so far is Digital Rand. Based in Johannesburg, Fuse is used to store and transact with their newly issued stablecoin, Digital Rand. Local consumers are not only able to make mobile payments via Fuse’s DeFi infrastructure, but they also have immediate exposure to more stable currencies such as EUR or USD through Fuse decentralized exchange. This is hugely beneficial for an economy that suffers from frequent and significant price fluctuations. Fuse success in South Africa can be easily replicated in any developing country lacking strong and stable monetary policies.
Ending
Whether it is Terra, Fuse or others out there, they turn an intimidating subject into a fun and meaningful exercise that is accessible and relatable to all. Maybe in the foreseeable future, money will no longer be associated with greed, materialism, exploit but rather community, empowerment and growth.
Dreamerella 