Why Open Source Finance Will Win

Some call it #defi, some call it #dopefi, I have no idea why.

Richard BurtonBlockedUnblockFollowFollowing

Mar 11

I want to make a prediction and then walk you through how I arrived at it:

50% of all assets will live on an open source financial protocol in 50 years.

Today, nearly all assets are described in simple SQL databases that are wrapped in layers of complexity. We call these onions banks. Over time, as new assets are created, the creators of them will choose whether to instantiate them on the closed system or an open one. My hunch is that this shift has already begun. When Rune wanted to create a debt system to power a stable coin, he set Maker up as a DAO (Decentralized Autonomous Organization—A fancy way of saying a digital system living on Ethereum.)

Investors who wanted to participate in the upside are not able to buy equity in a company. They are only able to buy tokens in a system. That is amazing.

Today, if you want to be a financial technology founder you need to be incredibly good at building a company. Patrick Collison at Stripe, Zach Perret at Plaid and Tom Blomfield at Monzo are some of the sharpest minds I have ever felt. They are laser focused on fixing the traditional financial system by rebuilding it from the inside. All of them had to jump through thousands of regulatory hoops before they could open their doors for business. It required lots of human and financial capital.

It helped that they were all extremely good at speaking the language of the bankers and conversing with the regulators that hold the keys to the system. They attracted the right kinds of investors who opened the doors that were previously unlocked. They negotiated access to closed source, private programming interfaces that gave them a way to move money around. They burrowed into the traditional system and now they are working their way out.

I know I am not on their level. I could not do what they have done. I have fallen in love with the open source financial system because it has allowed Balance to ship a product to tens of thousands of people around the world to help them manage hundreds of millions of dollars. That was unthinkable a few years ago. People in India, Argentina, Australia, Poland and all over the world have connected to Balance to manage their assets. We did not need permission from Vitalik. We did not need a backdoor deal. We just wrote some open source code and published it on the Internet. This still blows my mind.

Open source financial infrastructure matters because it lowers the barrier to entry for financial technology entrepreneurship. You do not need to be an alien to start a company in this space. You can be a regular person like me. If you have some ideas about how to contribute, you can write code and start sending transactions to the Bitcoin or Ethereum networks in a few minutes. Today, it is pretty hard to carve out a business model on this system without selling shitcoins. However, that is starting to change. People are building on-chain businesses that anyone can participate in such as Maker and Uniswap. Participants in these businesses are generating #hashflow from their operations and the token #hodlers are all benefiting from it. This is incredibly exciting.

Our hope is that Balance can help accelerate the world’s transition to open source financial infrastructure. We think the best way for us to do that is to make a few of the most magical protocols easier for muggles to use.

When I watch my Father log into his brokerage account, it causes me pain. He has to remember a complicated password and find a plastic widget that he usually loses.

When I show him how to use Balance and WalletConnect, it makes me so happy. He can monitor his assets on this system because a few people worked incredibly hard to build something better — and no one could stop them.

Open source financial infrastructure will win because it enables people to fork off and improve it when they disagree with each other. That is why I am so excited to work on this stuff.

As more founders enter the financial technology space, they will learn from the pioneers of today and build open systems on top of open networks. The best teams will stop starting startups and start growing communities. They will do that because the traditional path of growing an organization is so difficult. Today, you need to raise rocket fuel venture capital and try to grow as quickly as possible. I hope that the near future will bring more options to the table. I want to raise sensible amounts of capital and grow a company sustainably to profitability. Instead of focusing on an exit or a public offering, I want to focus on customers and the community of investors who have supported Balance.

This is a very different mindset. I think it will lead to a much higher number of enduring organizations and community-run software networks. Open source operating systems did not destroy Microsoft. Linux simply staked out new ground until it found the future. Then, when Microsoft wanted to play in that future, it had to let Satya Nadella steer them there. Open source financial systems will not destroy Wells Fargo. Ethereum will simply stake out new ground until it finds a useful applications like Maker. Then, when Wells Fargo wants to play in this new world, it will have to replace the CEO with someone who will take them there.

The open source financial system currently holds a few useful tokens and a host of scammy shitcoins. It is a microscopic organism living on the internet. While the prices of the tokens have all dropped. The robust systems built in it are growing at an incredible rate. You only need a few decades of 20%-a-year growth to turn a few billion into a few trillion.

The internet did not kill many companies. It enabled lots of new ones to grow.
The interchain will not kill many banks. It will enable lots of new ones to grow. The world will shift over. When it is done, we will have Balance.