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DeFi and the FUTURE of FINANCE
Campbell R. HarveyAshwin RamachandranJoey Santoro
Copyright © 2021 by Campbell R. Harvey, Ashwin Ramachandran, and Joey Santoro. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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FOREWORD
DeFi is a cute acronym for “decentralized finance,” but it obfuscates its true potential: a new financial system built from the ground up. While DeFi is small today—containing, as of this writing, tens of billions of dollars in assets relative to the hundreds of trillions in the traditional financial system—it is growing rapidly. And while its rise will take decades, I believe DeFi will be the primary financial system of the world.
Why? DeFi is a true “internet of money.” The internet showed the power of a universal, open network for information. In 40 years the idea of a similarly open, global network for value transfer will seem obvious, which makes this a truth hiding in plain sight today.
As with any new technology, crypto and the new decentralized financial system built atop it will be different from its old-world analogue. DeFi is unique relative to the traditional financial system because it is permissionless, open access, global, composable, and transparent. No longer are centralized institutions needed for basic financial actions. In DeFi, you can be your own bank and get credit from code on a blockchain—no institution required!
Yet so little of the infrastructure of this ecosystem has been built. We are perhaps 1 percent, likely less, into DeFi as a phenomenon. A burgeoning ecosystem of developers around the world is currently constructing the financial building blocks of tomorrow. At our crypto investment firm Paradigm, we often ask ourselves, “If there were a periodic table of financial primitives, what has been built today and what is left to fill in?” That is the opportunity for entrepreneurs.
DeFi, like the internet, will likely make financial services cheaper, faster, secure, personalized, and more. If YouTube grew the breadth of video content by orders of magnitude because it was free and easy for anyone to both create and use videos, what will DeFi do for financial products as it similarly allows anyone to create and use anything at near-zero cost?
That future has yet to be written. This book provides a peek into that future, and you, the reader, hold the power to create it.
Fred
