Transitioning From Programmable Money to Programmable Wealth Creation in the Real Economy
Bitcoin began as a form of “digital gold”. A few years later, Ethereum arrived as a form of “programmable money”. In the early days, many in the traditional financial services industry wrote cryptocurrencies off as an unproven technology that was trying to replicate the investment allure of gold. Gold, as we know, is mostly a speculative asset, which unlike stocks or bonds, cannot produce much cash flow. To say something that’s completely not new: Assets that produce cash flow from activity in the real economy are commonly prized as ideal forms of wealth creation.
Today, with the emergence of stable coins and DeFi, we now have crypto-assets that produce cashflow, albeit mostly not from activity occurring in the real economy. Compound’s cDAI is pegged to the value of US dollars, while producing synthetic interest at variable rates depending on borrowing rates. Borrowers within the Compound ecosystem leverage borrowed DAI to mostly speculate on the movements of cryptocurrencies. While novel in implementation, this hardly qualifies as value-creation in the real economy. Therefore, we are mostly still waiting for blockchain-based assets to mature into real economy wealth-generators and ideal investment vehicles in the eyes of seasoned investment managers like Ray Dalio, who calls stable forms of money masquerading as investments such as cash “trash”.
Money, cash… guap (whatever you want to call it) is simply liquidity. Liquidity is needed to pay bills, feed families, and stay warm in the cold. It is a side-effect, and not the source, of wealth. I argue that today’s cryptocurrency ecosystem boasts assets that are very much fungible and, in some cases, predictable enough (in the case of stable-coins and their interest-bearing counterparts) to be considered money. This programmable money is an important step towards the development of programmable wealth.
Programmable wealth is a collection of digital assets on a distributed ledger that contribute towards (and appreciate in value based on) activities that provide in-demand services, create food, and produce energy. An example would be a smart contract that lent funds to a telecommunications company to provide cellular service. Dividend-paying stock in a farm which traded in the form of cryptocurrency. Cashflow swaps managed by smart contract-based organizations, or DAOs, between power plant earnings and fixed-interest rate payments.
To get here, the blockchain technology components are very close, with solutions in Layer-2 on Ethereum, as well as developments in other ecosystems. However, the remaining requisite pieces are not as technologically sophisticated. We need crystal-clear legal frameworks, more fail-safes for lost or stolen funds, human capital from outside the blockchain echo chambers, and integrations with existing social and technological infrastructure.
