What is the Value of Defi?

Thoughts on the value of decentralized finance.

The most common topic of conversation for newcomers in crypto starts with a question. “How do I make money?”

Only a small percentage of the population understands this topic. Few find proper education around traditional financial literacy, much fewer find strong resources for crypto financial literacy. The rapidly evolving landscape and requirement of knowledge to even begin is daunting and nearly immediately causes imposters syndrome for those who attempt to breach the learning curve.

I felt this way for a long time. As I began learning and building in the ecosystem, the topic that drew my eye most was DAOs. Global democratic human coordination sounded like a problem I wanted to help solve. Defi on the other hand, felt dirty. While DAOs purpose is to create scalable coordination mechanisms, Defi just felt like a product useful for financial arbitrage.

Today I recognize that Defi applications provide the fundamental building blocks that will increase utility for digital assets. Ultimately, these assets are more accessible to the mass population than traditional financial products. The future of the financial system built on a public decentralized ledger allows for greater distribution of access as well as higher fidelity and transparency in accounting. These efficiencies are challenging to quantify.

The Defi ecosystem (today all built on Ethereum) broadly breaks down into decentralized exchanges, decentralized lending, and decentralized insurance. Each of these categories has a variety of projects pioneering the path forward to create more financial sophistication and utility with digital assets. 

To get a picture, visit Defi Pulse, State of the Dapps, or Dapp Radar. This will tell you the most used applications available in decentralized finance, and the metrics supporting these applications.

If you are just learning about this tech and these opportunities, you’re doing so at the right time. There are still less than 100K daily active users on Defi today. This pales in comparison to the billions of people who use the Internet every day. You are early in receiving this information. It’s ok to feel a little overwhelmed. Ease into it. 

Download Metamask and send some ETH from your Coinbase account. 

Defi Hygiene:

  1. Define your goals: Are you just getting started and need to educate on these systems? Download MetaMask, send ETH to that new address, go to Uniswap and buy a new token, now you’ve used a decentralized exchange. Do you want to understand the most sophisticated opportunities to grow wealth with Defi? Read this.

  2. Start small: always send a small amount of token to an address prior to sending a large amount of token. Also, for products you haven’t used before (like a DEX), it’s ok to start with a small trade prior to making that big trade. These systems have some quirks to learn about (like slippage and gas fees).

  3. Stay skeptical: Never listen to anyone on the internet approaching you for money. Also treat anyone claiming to be “an expert” with a ton of scrutiny. Nobody is an expert in such a young space. Scams abound.

  4. Personal management: Develop a system for your digital asset management, specifically around the way you store private keys. As you transition to owning your own assets, you take on the risk of losing those assets (typically risk is held by a bank or exchange). This is risk is OK! It opens opportunities. It’s important to develop a system for storing private keys to your wallets. Write down seed phrases and keep them safe (maybe place a copy in a vault). Develop a system that works for you.

Introductory Steps into Defi:

  1. Completely new to crypto? Download Metamask. Connect your wallet to Uniswap.org, Balancer.finance, AAVE.com, or compound.finance. These give a taste of the products available in this space.

  2. Explore the crypto Rabbit Hole this is a product to help newbies learn about the many protocols available in Defi while earning tokens.

  3. If you want to deep dive into Defi, go to Bankless. Read this guide. This step provides an overwhelming amount of awesome information. Take your time.

I hope this post is helpful in assisting your understanding of the opportunity available with decentralized finance. Blockchain tends to over promise and under deliver, and Defi is one area of development where this tends not to be the case. The systems here hold and generate real value, and will provide the financial backbone needed for the wild opportunities created by this new technology.

Best,

JD

PS: Will continue to refine this substack! Our focus has been on the podcast launches, but more essays coming soon : ). Lookout for the newest deep dive on DAOs launching soon!

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