DeFi has a legitimate use case and NFTs have an astonishing number of use cases. Smart Contracts are an incredible, incredible innovation.
We are at the tip of the iceberg and nothing has been more disappointing than seeing the traditional tech world's dismissal of crypto as "get rich schemes". The tech world is surprisingly as complacent now as the legacy dinosaurs it first helped destroy in the 1990s and 2000s.
I think it's somewhat similar to innovator's dilemma, a lot of current tech leaders were once the underdog and now are at the top, so they end up becoming complacent and non-innovators or slow innovators like the companies they replaced.
An example of really cool smart contract usage is borrowing against your crypto, for example, this person/group was able to borrow roughly 340M$ [1], the best part, they didn't even had to provide their name or deal with any other human, all enabled by a smart contract that they can inspect and verify.
To be honest this trend of borrowing against your crypto is specifically something that makes me very suspicious about the current state of the cryptocurrency world. If crypto crashes 30-50% again all these loans for which collateral is going to be sold would crash the whole market (or am I missing something?). Also it seems way too popular to borrow against crypto and then use that money to invest in crypto as well, creating significant leverage in the market, worsening the problem I mentioned before and inflating the price of crypto compared to its “true” value.
These are all over-collaterized, so you're usually borrowing up to 30% of your collaterals value, it's nowhere near the 2-20x leverage that you might get in traditional markets or leverage based exchanges.
I think it makes a lot of sense in the current bull market, it probably makes less sense in a bear market unless you're borrowing only up to like 5-10% of your collateral to actually spend on something you need.
The numbers I’ve seen range more from 40-60% (haven’t gotten involved with this though so not sure how accurate these are). That would cause lots of issues on a 40% pullback.
I find it incredible that someone can code up a strategy for deploying an investment vault, the community, which operates as a Decentralized Autonomous Organization (DAO), can decide to vote on it, and two days later, people can start investing money into it and earning interest - no middleman or manager involved. The investment vault will deploy the capital in different protocols based on the strategy outlined (and voted on by the DAO) automatically.
The automation smart contracts can bring about is scary.
NFTs are the equivalent of trading cards or video game lootboxes. They enable a form of conspicuous consumption whereby you conjure up value by slapping a digital signature on something and creating artificial scarcity.
From the perspective of the state none of these instruments improve supply chains, enhance military or state capacity, increase productivity or growth. NFTs basically enable the uber wealthy to sell original versions of their artworks or whatever, they have no impact on real world innovation or mass commodity production.
NFTs can store any data. Currently, they're used for art but more and more crypto projects are deploying them for store different types of data on chain. You can tokenize anything and track it on chain - music, art, physical goods, real-world bonds.
In the simplest form, they can be used to fractionalize ownership. Integrate these ownership records with existing infrastructure and you can suddenly transform ownership and royalties.
I'll give you an example.
I'm an amateur musician and every pro musician I know has harrowing tales of being shafted by record labels. They have no power to negotiate because they need the money. Most get paid cents on the dollar and record labels keep the bulk of royalties.
Imagine a situation where a musician can mint an album as an NFT and put it up for sale. 100 people can buy 1% each of it. This entitles them to 1% of the royalties earned from the album. Since all this data is on-chain, it's easy to verify.
Now suppose there's a music platform integrates NFTs. Every time a user plays a song, the platform verifies ownership records from the blockchain and distributes royalties to addresses that own the NFT.
Suddenly, you've completely decentralized and democratized ownership. You've bypassed gatekeepers. And you've given the chance to anyone, no matter where they are, to invest in - and get invested by - anyone.
sure but putting a license on the internet isn't that innovative. Our driers licenses are pretty good and pretty cheap, and we've proven land-ownership over generations pretty well. This is not world-changing stuff.
If you want radical innovation build some robots that make house construction 90% cheaper, whether the license for my house is printed on paper or a blockchain doesn't matter to anyone.
NFTs and virtually any crypto tool have no impact on the material world, and we very much still live in the world of atoms.
Putting a license on the internet isn't innovative. Putting a license that can be owned in fractions is.
Most deals in the real world are already fractionalized. If someone is building a new housing complex, he is likely going to raise funds from a bunch of investors, each of which will get a share of ownership based on their investment and negotiation skills. The only way to invest in these deals is if you know people and are in the right place at the right time. There are gatekeepers aplenty and you need big capital to get in.
If you were to tokenize the same new housing complex, anyone, anywhere can buy it up. Ownership records are transparent. There are no gatekeepers. And ownership is fully democratized. You might have $1 to your name but you can still claim to have ownership of this spanking new housing complex (even if its 0.0001%) - no intermediaries involved.
It opens up previously unavailable opportunities to anyone, not just the people with the connections and the big wallets.
DeFi main value proposition isn’t tech (that’s cool) but avoiding regulations.
Blockchain has lots of potentially interesting use cases like NFT, but crypto currency is still not one of them. And by not cracking down on scams in cryptocurrency will only make any future adoption harder.
DeFi's main value proposition is the automation of money.
NFTs main value proposition is fractional ownership and assertion of ownership rights in a transparent manner.
Imagine owning 1% of a Drake song - and getting paid 1% of the royalties every time it plays on Spotify. Or creating a yield earning strategy that automatically moves money around based on fixed paramters without ever interacting with a banker or fund manager.
I'm not sure what NFTs have to do with record labels. Unless you're saying that the only reason we have record labels is because musicians can't otherwise keep track of who owns their work?
Indeed, but the bar for "automating money" in traditional finance is extremely high due to not only legitimate regulatory reasons but also to large banks and institutions trying to preserve their power/dominance.
In DeFi anyone can automate money. For instance, for the past few months I've been building an experimental options exchange [1] in my free time, which would be impractical on traditional finance.
Scott Galloway has an interesting take on this, predicting it's only a matter of time before some prestigious institutions and brands jump on the bandwagon:
Traditional tech innovation was predicated on doing things more efficiently (sometimes orders of magnitude more efficiently) using new technology, thus disrupting incumbents. Blockchain reverses this completely by doing simple things, like changing numbers in a database, for orders of magnitude more computational (energy) cost. Until someone squares this circle I will continue to be skeptical.
We are at the tip of the iceberg and nothing has been more disappointing than seeing the traditional tech world's dismissal of crypto as "get rich schemes". The tech world is surprisingly as complacent now as the legacy dinosaurs it first helped destroy in the 1990s and 2000s.