The Power of Permissionless Financial Primitives
A few weekends ago I traveled to San Francisco to compete in the Eth San Francisco hackathon and spend a couple of days at the Coinbase office. There were tons of highlights from the trip, but one of the biggest (and an idea that I can’t get out of my head) is the idea of Permissionless Financial Primitives. Over the weekend we build our project on four different primitives and it made me realize how important these building blocks will be to the future of finance.
Financial primitives are the building blocks of the decentralized finance (DeFi) ecosystem. These are technologies that exist on their own and can be used to build larger, more complex systems. Many have analogous assets in centralized finance. Some popular decentralized primitives:
- dy/dx protocol is building decentralized systems for derivatives and margin trading
- dharma is building decentralized lending solutions
- 0x project is creating primitives that allow any asset to be exchanged in a trustless way.
- Augur is building decentralized prediction markets
- Set Protocol is creating a standard for tokenized baskets
Together they form a powerful set of building blocks anyone can use to create new financial products.
These primitives will do to finance what open source software did to software development. Before open source, only people with access to enough money for licenses could build new software systems. Open source made it so anyone could download complex libraries and build something totally new. No permission needed. The same is true now for finance. In finance today creating derivatives, loans, and exchanges is expensive and legally complex. With permissionless financial primitives anyone who can code can now build financial products.
Our team used a combination of Set Protocol, dy/dx protocol, Augur, and 0x. Over the course of 36 hours we built a system that tracks major global markets such as the S&P 500 and makes them globally accessible, winning the 0x prize, Set Protocol prize, and runner up in the final. In the traditional finance system a similar product would have taken months to create and list. We did it in a weekend. If you want to learn more about our project, you can check it out here.
Further Reading:
Jacob Horne on the emergence of crypto economic primitives -https://blog.coinbase.com/the-emergence-of-cryptoeconomic-primitives-14ef3300cc10
Opening the defi network https://medium.com/defi-network/opening-defi-42a5afdb71e0
