***By Steven Becker, CEO of UDHC, former President and COO of the Maker Foundation, which helped build Dai, a crypto-collateralized stablecoin.
The Decentralization Series: Part Three
Being optimally decentralized is about creating resiliency by sustaining a protocol in a state of sufficient decentralization. Protocols achieve this steady-state by initially iterating and balancing control, funding, and community development to eventually emerge with a decentralized workforce and governance framework. Both of which work towards sustaining the objective of the protocol.
But how do you get there? What are the paths to becoming optimally decentralized?
As institutional interest in the cryptocurrency industry grows, it’s critical that bridges exist to onboard them in a safe, compliant manner.
Stablecoins are becoming more mainstream; Mastercard and VISA are accepting USDC as payment and JPMorgan’s JPM Coin for its global payments network. The emergence of Central Bank Digital Currencies (CBDCs) is a sign that the major economic powers recognize the utility of digital currency.
Oasis Pro Markets (“OPM”) is the first Alternative Trading System (ATS) to be registered as a regulated platform for trading digital securities for digital cash. Using stablecoins as digital cash enables transactions to take place onchain. Trades settle almost instantaneously as each subscriber has a pre-verified, digital ability to complete a trade. Subscribers of OPM are also approved for registered and exempt transactions, including transactions involving equity and debt securities, OTC securities, IPOs, and mutual fund securities. OPM’s customer base includes institutional and accredited investors, and they trade with other broker-dealers.
We believe that OPM is positioned at the forefront of digital securities innovation by leveraging blockchain and smart contract technology to expedite the transfer and settlement of assets. Beyond that, the team’s product suite is ripe for real estate-related products, including REITs and RMBS securities.
The Decentralization Series: Part Two
Previously, our post - “On Being Sufficiently Decentralized” - stated that technological decentralization and self-sovereignty are the ingredients for a protocol or application being sufficiently decentralized. But, it is not a natural steady-state; it has to be maintained.
Reaching the state of sufficient decentralization is one thing, but maintaining it requires much work. Creating the right environment and framework to sustain this state is what Optimal Decentralization is all about.
The Decentralization Series: Part One
Decentralization is intuitively easy to understand but difficult to define precisely. Creating a blockchain-specific working definition helps attribute value to protocols and applications. Taken a step further, it can help identify the regulatory touchpoints for consumers and investors.
Decentralization describes an intention and level of control. For example, a system intended to be centralized could distribute power and become less centralized. Likewise, a decentralized system could accumulate power and still remain decentralized. The intention is important, followed by the degree.
Trading venues first and foremost represent a gathering of people. For example, Amsterdam’s “First Regular Trading Market,” a gathering that started on a street named Warmmoesstraat in the fifteenth century, led to the first stock exchange - The Amsterdam Stock Exchange. In the late eighteenth century, a gathering under a Buttonwood tree in New York led to the most iconic contemporary stock exchange, The New York Stock Exchange.
The objective of the gatherings was clear: to trade, while the people represented an ensemble of information, perspectives, and requirements that created the driving force for trade—the price. DeFi’s strength is in its ability to naturally generate a price discovery process within a versatile market structure created by its network of communities.
Regulation and Web3 have been a subject of policymakers recently, with conversations becoming elevated around DeFi. As former Maker Foundation employees who contributed to MakerDAO’s decentralization, some key elements from our experience can help shape the conversation to be more transparent, more definitive, and more applicable.
Financial intermediaries are the foundation of financial services and the primary touchpoints for regulators, with activity-based regulation close behind. Decentralized Finance, or DeFi, has seemingly turned this on its head because, if decentralized with no intermediaries, will the traditional regulatory toolbox still work? The answer is yes.
DeFi is more about creating efficiency than disintermediation. Historically, the more technology develops, the more the incumbent intermediated architecture needs to change. However, intermediation does not disappear; it just shifts its resources around. Efficiency brings lower costs and an expanded user base, which also applies to DeFi.
Realistically, DeFi, even thriving, is still a technology, a set of tools. Users care more about convenience and financial incentives than technology. For example, paying wages continuously to a struggling single parent - which DeFi can do - instead of every two weeks or monthly could remove reliance on expensive and extractive payday loans. But that means still working with a financial intermediary, still requiring a front-end providing that service while abstracting back-end integrations into DeFi.
Today, we’re pleased to announce the UDHC, an initiative to bring DeFi to the mainstream. The UDHC will fund and guide projects that build on top of established DeFi ecosystems to achieve this goal. We believe in the amalgamation of Traditional and Decentralized Finance, where they will blend into a new, better, and more open definition of “Finance.”
Operated by former Maker Foundation employees and led by Steven Becker (Former President & COO of the Foundation), our experience allows the UDHC to guide and ensure projects build on a compliant arc of decentralization.
Let’s dive in: