Understanding DeFi

Chapter 6. The Future of DeFi

We learned about the history of blockchain and DeFi, the platforms and ways to interact with DeFi, how to make money with DeFi, and some of the issues with DeFi. But DeFi isn’t really dealing with the regulatory issues coming—and some are coming soon. It’s also not taking advantage of the biggest assets it will have, and how this will revolutionize finance. So let’s talk about the future of DeFi, because where it’s going is very different from where it is right now.

The Rise of Asset-Backed Tokens

Right now, we have some asset-backed tokens in the space. These include stablecoins (nonvolatile tokens backed by fiat or another asset, or exchangeable for something in a set ratio) and governance tokens (backed by the right to vote and/or the right to receive additional tokens).

But these tokens are only marginally backed. The stablecoins we have right now are not properly designed, and most do not have any chance at long-term value. Even the fiat derivatives (dollar-backed stablecoins, like Tether and Circle) are fundamentally flawed, as discussed, and will ultimately break their peg to fiat. The governance tokens grant more tokens. But we have no real independent way to value those tokens. We have market value, but those values are highly volatile, especially for tokens on chains or platforms that are barely operational or rarely used.

Purchase and sale of tokens is too often tied to the desire to increase market value rather than the fundamental value ...