Crypto, blockchain, decentralized tokens… DeFi (Decentralized Finance) is a new world of jargon. It’s been made worse by hyperbolic claims and a get-rich aura that is at least reminiscent if not bigger than the Dotcom era. DeFi is the next wave of innovation for the internet.
Talent is flocking into the area too. Take a look at the major university and you will see cryptography courses not only offered but booked up.
What people miss when they broadly dismiss DeFi because of the hype are the legitimate, competitive businesses that exist. They have true revenue and products that are viable and regularly used. These DeFi businesses represent a new structure of financial instruments.
Below are a few examples to help get you started. These are not recommendations for using nor investing in these businesses, but I found them to be illustrative for paying more attention to DeFi.
Web 3.0 is a more customized and privacy oriented version of the internet. How does advertising typically work right now? A company like Google or Facebook will get paid to place ads on websites and in feeds using your data. A company like Brave switches this paradigm. It not only directly protects your data as you browse but allows you to potentially share in the profit of it.
If you choose to watch an advertisement, you will receive compensation for it. Brave says you will earn 70% of what the advertiser paid, and they keep the other 30%. This allows you to potentially monetize your data, or simply browse without the intrusive distractions. They can do this because of cryptography, but your experience will feel more like how you typically use a browser.
Next, let’s look at lending. FinTech is a growing world disrupting traditional banking. A company like Compound runs its business on the Ethereum blockchain. This allows them to offer lower cost (no middle(wo)men) and efficient solutions. They offer both deposit interest and loans against collateral. Loans are approved within seconds based on algorithms and at a fraction of the cost. Their current balance sheet makes them approximately the size of a community bank.
Finally, a company such as Filecoin represents an opportunity in decentralized cloud. They help people store their files how they’d like to–customizations available around backups, speed of access, and cost. They do this by allowing people/businesses with excess storage capacity to compete for your business rather than a big competitor that owns all the servers. This dramatically reduces the costs as people are competing to store your information.
Each of these companies is a direct competitor to a company that you already use. Their innovation potentially gives them an advantage over the incumbents by providing the same services at a lower cost, faster, and more secure. I think there is both an opportunity as a consumer to benefit from these new businesses, and also as an investor. Doing your homework on a company’s fundamentals and potential risk-reward could be meaningful in a rapidly developing area.
Let me know what you think, and where you see opportunities.