DeFi is a Zero to One Innovation - The Daily Gwei #6


The term “Zero to One” comes from Peter Thiel’s famous book of the same name. In this book, Peter argues that the next big innovations will not come from existing ideas or businesses, but from radically new innovations that change the world as we know it.

I posit that DeFi is a zero to one innovation.

DeFi protocols are not just another “fintech” company that builds on the old rails - DeFi is being deployed to new rails that are literally being recreated from scratch on top of Ethereum. Just as the internet democratized publishing, access to information and communication, DeFi democratizes finance and levels the playing field for anyone in the world to build a finance company/protocol.

Let’s recap with a bit of history. For most of 2017, DeFi did not exist as we know it today. Ethereum’s killer use case was being a fundraising vehicle for ICOs and people were mostly excited about the prospect of Ethereum being a “world computer”. Fast forward just over 3 years and DeFi is now the dominant use-case of Ethereum (by far) and the space is evolving at an extremely rapid pace.

The first DeFi app to reach non-negligible levels of adoption was MakerDAO (and Dai) - a critical building block that allowed the DeFi industry to flourish around it by birthing the concept of “money legos”. Since Maker’s launch, value locked in these new financial protocols went from $0 to $1 billion in 2 and a half years and shows no signs of slowing down.

Now, this metric alone doesn’t really give a very nuanced view on the adoption of these protocols but this metric is what people pay attention to and where the narratives are formed. The $1 billion number sets the story in people’s minds that DeFi is not just some toy or joke but that it has real value flowing through it. On top of that, the growth has been explosive and this is exactly what attracts investors (both retail and professional) and metrics like the above inform their decisions on where to allocate capital.

Developers have taken notice too with literally hundreds (if not thousands) of apps being built using the various money legos that are now available. Some of these apps go no further than a weekend hackathon project, but some of them go on to raise money, build an amazing product, and eventually turn into a profitable business.

DeFi is a Cambrian explosion level event for finance.

All this isn’t to say that other things being built on Ethereum aren’t important - hell, I believe Ethereum itself is a zero to one innovation! It allows for all kinds of experiments and I’m personally excited to see DAOs continue to evolve and mature as well as more “web3” apps such as decentralized identity.

So, where do we go from here? Well, after the great bull market of 2017, we didn’t have much to keep people in the Ethereum ecosystem. I believe that by the time the next bull market has come and gone, people won’t leave in droves like they usually do, instead they’ll opt to stay because we’ve built amazing products and services for them that they actually care about using.

All information presented above is for educational purposes only and should not be taken as investment advice.


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