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Daily Balajisms – the DeFi matrix
A global decentralized exchange of all-against-all assets
Balaji Srinivasan thinks that, what he calls the DeFi Matrix, will be to this decade, what social graph was to the last one. Decentralized Finance (DeFi) disrupted Wall Street and created composable finance ruled by code.
The DeFi matrix is an abstraction of a giant crypto wallet, where all assets are tradable against all other assets. It will do to finance, what Google News did to traditional media – it dissolved their natural regional monopolies, and reprinting AP or Reuters stories suddenly wasn’t enough.
After crypto, suddenly even national currencies need to compete on features, says Balaji. China with their digital yuan CBDC, has understood it for some time. Last year, 100B of digital yuan was spent and the currency was tested in cross-border transactions.
The global share of yuan is around 3%, compared to over 42% for dollar and 35% for euro. Digital yuan might change it quickly.
I remember, many years ago, reading a quote by Wang Chuanfu, BYD CEO, who was saying something like digital watches are much easier to produce than analog ones, so BYD will outcompete trad car companies with EVs. You can watch how BYD will soon disrupt the European car market and industry.
This logic applies to digital currencies as well. EVs can have 100x less parts than traditional ICE cars. But hardware is hard (to iterate on) so this analogy is only roughly accurate. Bitcoin was the first digitally native form of money – the digital gold.
Satoshi Nakamoto’s invention will be probably on par with the Reformation, in the large scheme of things, thinks Balaji. But today, any kid can create a token, DAO or NFT using chains like Solana for a price of a lunch or less. With no need to ask IMF or think about SDR reserves.
Balaji explains, that today around 1000x more people have crypto wallets than Bloomberg terminals. People learnt how prices are born thanks to V-shaped depth charts on crypto exchanges.
Just a side note, Balaji connects the concepts of a depth chart and the Overton window – how the acceptable opinions are shifting based on demand and supply for them.
Currently, many governments contemplate digital currencies and CBDCs. Pro-crypto mayor of Miami, Francis Suarez, launched MiamiCoin, the first city coin. He and Eric Adams, the mayor of NYC take their salaries in bitcoin. Wyoming has a DAO legislation. El Salvador and the Central African Republic have accepted bitcoin as legal tender.
Sooner or later, all assets will be put on chain. For many reasons, one of them is the desirability of triple-entry accounting and composability of finance that will make M&A and VC investing much easier.
The DeFi matrix will make all assets liquid and tradeable against each other 24/7. This will reduce the need for cash and fiat currencies.
Bitcoin is the ungovernable governor of governments says Robert Breedlove during his Balaji podcast series. Balaji has a similar opinion - bitcoin will be the 0,0 of the DeFi matrix, and it will be a de facto world government nobody anticipated.
The digital gold will keep governments in check, as the physical gold once used to.