The arc of finance bends towards efficiency
By Colin Johnson (@colinhjohnson), Co-founder of Freeport
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A three part series describing how we aim to change the notion of asset ownership — and chart the course towards a new era of human efficiency on blockchain.
First, let’s talk abstractions.
Not just any abstractions; value abstractions. Simple stuff. Like what a dollar even… is. You may have heard the story in Econ 101 about farmers and artisans meeting at the bazaar; some with grain, some with goats, some with artwork or pottery. In a perfect world — with perfect quantities — you would arrive at the market, exchange your wares for a seemingly equivalent value of another resource, and head home with exactly what you need.
But perfect the world is not. You know how this story ends; trade is difficult (if not impossible) when engaging parties don’t have a common, divisible store of value. Money fills that role. But what do we really gain from having a medium of exchange?
Efficiency
Among other benefits, we eliminate the need to wait for optimal trading. So more trades occur, more people are happy with the outcome, and ultimately more work gets done. Efficiency in commerce is a force multiplier for humanity. And that’s a noble thing to pursue.
But money is just the first abstraction layer. Consider publicly traded stocks. Market participants (theoretically) predict the next few years’ revenue for an organization, add in some esoteric variables, and make purchasing decisions that drive an organization’s ultimate value — its market cap. Divide that by the total number of shares and a second abstraction is formed into an object we can understand — stocks!
With this newly crystallized concept we can do things like give loans out against a stock’s value; create derivatives; or issue shares to incentivize employees. These elements lead to further efficiencies in human output, and the only thing that’s really happened is we’ve deployed a new intellectual paradigm — a new abstraction.
A generational leap
Sharp minds continuously find ways to arbitrage value out of our newest abstractions. Sometimes they go too far — the phrases “mortgage-backed securities,” and “Terra” tend to evoke cold sweats and flashbacks. But on the whole, these abstractions tend to serve as levers for human efficiency. Blockchains and the cryptocurrencies that move within them are no exception; in fact, they’re likely to become the new rule.
Here’s why:
- Assets are tokenized. Tokenization allows for almost infinite divisibility of assets into discrete units, making them radically easier to buy, store and trade against one another.
- Records are permanent and transactions are public. This means you can know exactly where your assets have been every step of their life, while privacy can be effectively maintained through wallet addresses.
- Diverse types of value use a common set of rules. Where is the value of your house stored? What about the artwork on your wall? Or your car, or real estate, or NFTs — or cash? Very likely, it’s all “held” by different merchants or government entities (or nowhere!). Blockchains have the power to normalize the storage and transfer of wildly different types of value by working with standard protocols and tools. You’ll be able to stake the value of your collectible car to instantly receive a loan to pay your mortgage. And no human will blink an eye, because…
- Smart contracts replace slow humans with fast code. Code can make decisions in a split second and need only be paid a bit of energy. Humans, not so much.
- Money becomes programmable. Splitting a pool of tokenized revenue amongst a group or setting conditional parameters for payouts becomes trivial — even with new asset classes — as the requirements are baked into the contracts themselves. And they do the right thing. Consistently.
It’s still difficult for many to intuit this sentiment, but crypto offers an entirely new, standardized abstraction layer that increases the utility of assets as more and more are brought on chain. For that reason, Freeport will sell assets that can live on-chain.
We would be poor stewards of the future to host them any other way.
In part II , we look at how DeFi can connect and amplify the value of tokens — and why it needs more assets like Freeport’s.
Follow along with us here on Medium, as well as on Twitter, and Instagram — you can also submit your email at freeport.app to be added to the pre-launch waitlist.
