It’s hard to ignore what’s happening in decentralized finance. It’s harder to understand what’s happening.
Like many of you, I’ve listened to podcasts, and I’ve read dozens of blog posts. And yet, I still can’t explain this to a layperson. And that’s okay. I’ve been here before. We all have.
I didn’t get interested in the stock market until after college. At the time, I was reading all about the crisis, and it might as well have been another language. I knew that trouble originated in the housing market, but I couldn’t understand collateralized debt obligations or credit default swaps. It took time and effort to get caught up to speed.
I’m sorry to say, but there are no learning hacks. There’s only effort and time. That’s a requirement to building knowledge. I’ve been obsessed with financial markets for almost 15 years, and I still feel like I barely know anything. That’s what makes this so exciting. It’s a puzzle that you can’t finish. As soon as you feel like you’ve mastered 1 domain, 5 others pop up.
You had to press your finger down a few times for the software to learn your prints on the old iPhone. Each time you lifted your finger and then put it back on the glass, you saw the digital prints filling in the blank spaces. The same thing happens when you’re learning, except the loop is never closed.
Last week I took a walk and listened to Packy’s piece, Own the Internet. He was speaking English, but with an accent I couldn’t understand.* So I decided to read it the next day to make sure it sunk in. Better, but still not great. This stuff is complicated.
When you’re venturing out into the darkness, most of the time it will feel like you’re flying blind. You’re like a child who wanders into the middle of a movie. But slowly, the dimmer starts to turn up, and eventually, you see the light.
I had one of those moments today thanks to a Substack from Front Month called A Legacy Guy Considers DeFi
Here’s how they described automated market makers.
The AMM model took the already considerable utility of smart contracts and expanded it a hundred-fold. Think of AMMs like YouTube for liquidity. With YouTube, anyone can record a video, upload it to their channel, and have the potential to be seen by billions of people. YouTube democratizes television.
With automated market makers, anyone can post liquidity to a decentralized exchange & grease the wheels of market structure, with the potential to profit in the process. AMMs are democratizing liquidity provision.
Finally, something clicked for me. And this is the inspiration I needed to keep going because I was getting a bit frustrated by the space. I was putting in all this time and wasn’t really coming away with anything. I’m more confused now than I was three months ago!
One of the main sources of frustration is that people in the space keep saying that this is a threat to traditional finance, but I just haven’t heard a great use case for it today other than speculating. I’m not saying they don’t exist, just that 98% of what I’ve read or listened to describes how to make money. And then I read this.
Additionally, I believe non-crypto use cases will materialize over time. Today Uniswap and the crypto space in general suffers from something called the Oracle Problem, which simply means blockchains can’t interact with a non-blockchain system by design. A system built on the Ethereum blockchain has a hard time incorporating the daily price of a non-digital asset into its process, for example. The Oracle Problem is what’s keeping an innovation like automated market makers from impacting traditional finance in a big way.
Ah, okay. So maybe I’m only sort of lost, not completely lost.
I wanted to share this because there’s a lot of nonsense out there about shortcuts. The truth is there are no hacks. Actually, 1.5x speed is a pretty good one. Damnit. But really, there are no substitutes for time and effort.
*This was a metaphor. I could understand him just fine.
Image taken from The World Financial Review