TraFi vs CeFi vs DeFi, check your convictions

Being in a full and conscious economic recession, given the data of the last 2 quarters with a negative GDP growth -1.6% in the first quarter of 2022 and -0.9% in the second quarter of 2022, these are the moments where we must review our convictions and put on the table whether we really have sufficiently mature and developed tools to be able to produce a monetary reset, or at least to provide people (who in the end will be the ones who will suffer the collapse and the subsequent pain) with independence, management, privacy and in general, a new opportunity to base the economy on code and mathematics, isolating it from the control of people.

Tool 1, Bitcoin: which allows sending and receiving value to and from anywhere in the world, using nothing more than a computer. A free software and an Internet connection, differing from any other tool for payments or money receipts over the Internet, it works without the need to rely on an intermediary. This means that bitcoin is the world’s first public digital payment infrastructure, where no permission is needed to use it as it lacks ownership.

With bitcoin, the typical ledger becomes a public blockchain and anyone can add an entry to that ledger when transferring their bitcoins to another person, regardless of nationality, race, religion, gender, sex or creditworthiness, thus bitcoin is the first public money that is globally accessible. It is undoubtedly the most important advance in computer science in history, as it represents freedom, prosperity and the rebirth of the human being.

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Without pretending to be hopeful, I know that sooner or later everyone will support and align to develop policies favorable to this innovation, so bitcoin will mark the end of a system and the beginning of another given the sophisticated monetary policies it brings with it ( It is up to us that this will follow its course and happen.

Tool 2, Ethereum: its issuance during its PoW stage was approximately 14,600 ETH/day, where 13,000 ETH was for mining rewards and 1,600 ETH was for Beacon Chain participation rewards. After “The Merge” and within the PoS stage, its daily issuance will be only 1,600 ETH/day earmarked for participation rewards.

 The London update introduced a minimum fee (known as a base fee) so that each transaction will be considered valid and that fee is burned. With “The Merge” update, Ethereum’s issuance rate is 1,600 ETH/day, bringing context and environment to this potentially deflationary asset, casting a very exciting outlook going forward for ethereum.

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If we also take into account that it is the protocol where the DeFi movement started, what is the protocol that underpins the non fungible token (NFT) movement, which creates digital scarcity of objects like art and certificates. What is the protocol that started the decentralized autonomous organizations (DAO) movement, which creates new horizontal structures of hierarchies and partnership management models. Believe me we haven’t seen anything yet. Ethereum is something like a high quality company, with a mutually beneficial ecosystem, where the price of its asset ETH today is very very undervalued.

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Tool 3, DeFI: transparency sums it all up in this powerful tool, making things clear, round numbers and returns have a reason to be. CeFi companies with the false DeFi label, like a Chinese imitation, such as Celsius, Voyager or Anchor had the same problem. The clarity towards their clients of what was being done with the money deposited in them. I am sure that if I had known what goes on behind the curtain of some of these centralized lenders, I would probably never have lent a single dollar.

When Lehman went under, no one knew what the risks were and no one knew what collateral they had. Lehman was a total black box, the biggest disaster for the U.S. Treasury, a folly that not only had economic costs, but there were costs of lives, costs of trust and the harsh reality of witnessing a weak, bloated system fueled by expansive monetary policies. With Credit Suisse and other large lenders we are seeing something similar, as incredible as it may seem, they are unaware of how much leverage their clients are taking on.

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 At DeFi we can presume that no one consciously does business without having in front of them all the information of the platform they are going to work with. Code, business, cash flow, incentives, token issuance, number of transactions, capitalization, daily volume, total locked value, etc., the main and important thing is to understand how defi works, to know how to appreciate that its speed, immutability and aseptic state allows it to maintain the balance of this entire financial ecosystem, where no one can break the rules. There can be no default and everything is self-executing in the way that is reflected in the SC that everyone signs when accessing a financial product. Nobody will call you to tell you that your loan is in default, nobody will tell you that you must put more collateral to your debt to be able to continue leveraged, as the Tradfi sector does. So when they do, it is already too late.

The whole ecosystem has learned a hard lesson, so the next generation of centralized lenders will be forced to provide more transparency. Regulators will probably become more active, requiring more proactivity from the teams, as it cannot be the people who will lend millions of dollars to entities that do not know what they are doing. I have no doubt at this point that cryptocurrencies will finally detach themselves from history, the economy and the macro, to start operating according to their own fundamentals. But what gives me the least doubt is that with the potential for transformation of Defi, its market share will be at least 30% of the total cryptographic market capitalization in the next 5 years.

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Welcome to the future of money….