The DeFi Matrix

Reshaping the Idea of Trade in the Network Age

This article will explore the history and evolution of money, including its various forms, from bartering to digital transactions. It will also examine the emergence of Bitcoin, perhaps the last form of money that may usher in the era of the DeFi Matrix, a monetary cathedral in cyberspace.

The DeFi Matrix offers a promising avenue for thousands of new tradable markets and the possibility of societal alignment, which could be as game-changing as the advent of social networks in the 2010s. And while many will profit from the new form of trade in the coming age of the internet of wealth, Network States will become the ultimate beneficiary.

From Variable to Constant: How Satoshi Transformed Money's Nature Into Eternity

The creation of money was a watershed moment in human history, as it effectively eliminated the non-coincidence of wants problem and spawned the advent of trade networks that transformed the world from direct to indirect exchange. Since its inception, the concept of money has remained relatively unchanged, serving as the universally accepted medium of exchange, the most liquid asset, and the most readily tradable commodity within a trade network.

Although the concept of money has remained constant, its forms have undergone various transformations over time. From the Mesopotamian shekel in 3000 BC that used commodities as money, to coins in India or the Aegean in 7 BC to the first paper money in China during the Song Dynasty.

"How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over his Country." - Marco Polo

In the past century, the idea of money has undergone yet another transformation. Moving away from commodity-backed money, such as gold, we have entered an era of digital fiat currency that relies purely on belief and the backing of men with guns. With every change, the power of the monetary network has increased exponentially, with larger numbers of participants and assets leading to greater trade and wealth generation.

In a similar vein, the impact of trade on human history is often overlooked, just as the potential of Bitcoin, the latest form of money, has been underestimated. It could very well be the final frontier in the evolution of money, with Satoshi Nakamoto's creation representing a paradigm shift from a variable to a constant form of money.

"How Satoshi Nakamoto Causeth the Bits and Bytes of the Internet, Made into Something Like Digital Gold, to Pass for Money All Over Cyberspace… into eternity” - Michael Neumann

Bitcoin's unique qualities make it the only asset that can be relied on for centuries to come. As the first form of currency underpinned by mathematics, it is not subject to manipulation by force or abstract hierarchies, as its intrinsic properties are immutable, thus becoming the ungovernable governor of governments. This makes it the most efficient system for transmitting energy across time and space in human history, akin to an almost lossless energy network.

Given these exceptional attributes, Bitcoin serves as the (0,0), the de facto cornerstone for the creation of a new monetary cathedral - the DeFi Matrix.

From Social Networks to Trading Networks: The Rise of the DeFi Matrix

Bitcoin, serving as the foundational internet currency; Smart Contracts, providing the internet legislative framework; and social platforms, serving as the internet cultural platform, are coalescing to create a shared foundation for an emerging internet economy.

Despite this reality, many fail to grasp that the 21st century belongs to the internet. The internet economy is already the largest market globally, as every person can instantaneously access the mighty trade network of the internet 24/7. In contrast, economies such as China or the US will always be hamstrung by geography, jurisdiction, and cultural limitations. As such, the internet economy represents the most connected trading graph of global trade, and those who ignore this reality do so at their peril.

A significant portion of this growth on the graph above is already attributed to the internet economy. When trading on the trading network becomes as effortless as connecting with others through the social network, the DeFi Matrix will begin to take shape. This shift will occur as each asset class moves on-chain, becoming digitally stored in a wallet and enabling trading of these assets against one another.

The DeFi Matrix is effectively a table that displays the price of every asset against every other asset 24/7 worldwide. This abstraction of a massive crypto wallet creates a globally interconnected on-chain trading network fueled by smart contracts. The DeFi Matrix is to the 2020s what the social graph was to the 2010s. 

Trading in the Age of the Internet of Wealth: How It Will Shape Our Future

The DeFi Matrix is set to improve trading across multiple dimensions we are already familiar with. With its advent, access to the trade network will become easier, ushering in more people to engage in trading activities. Furthermore, the Matrix will offer a more diverse range of assets and services, creating a total global liquidity pool. However, many fail to grasp that the DeFi Matrix will have various other effects on trading, particularly as we enter an age of the internet of wealth. 

Welcome to the Cybereconomy: Trade In Any Medium You Desire

Transitioning the trade network to cyberspace is akin to upgrading to a superconducting network. It is comparable to existing in a vacuum, without any friction, or like floating in outer space, beyond the pull of gravity. With new protocols, trading will become almost frictionless, granting everyone permissionless access to all markets and enabling investment in any asset via fractional trading, leveraging the same features presently accessible to only a small segment of investors.

Leverage and shorting will become effortless as smart contracts encode these fundamental trading features as parameters. With middlemen replaced by smart contracts, fees will approach zero, and trading will occur 24/7. In short, rethinking the financial system from the ground up and fixing finance via blockchain. 

The advent of Synthetic Assets and Prediction Markets will enable us to unbundle markets and re-bundle them within the DeFi Matrix. Synthetic Assets, analogous to derivatives, reflect an asset's underlying value for as long as it exists. Stablecoins represent a classic illustration of a synthetic asset. Prediction Markets, on the other hand, provide a mechanism for betting on the outcome of certain events, as demonstrated by the 2020 US presidential election.

These breakthroughs obviate the need to be bound by traditional assets such as stocks, commodities, indices, or cryptocurrencies. In fact, the sky's the limit, as we are not constrained solely by prices. Not only will previously alternative or illiquid markets become liquid, but diversification will be extended across a variety of unique markets, and anything with a dependable data feed can be transmuted into a tradable asset. 

In reality, this future is closer than we may fathom, as evidenced by the arrival of new DeFi protocols like Morpher, which are rebuilding financial markets on the Ethereum blockchain from the ground up. Morpher is already forging various new and unique markets, including luxury watches and collectibles. Apart from the unique markets they create, Morpher enables seamless trading of hundreds of traditional assets around the clock, with the ability to go long or short and utilize leverage. This fosters an almost frictionless trading experience, accompanied by cryptographic proof, giving rise to trades never before seen.

Derivatives have already surpassed the underlying asset markets in terms of size. Still, with the transition to frictionless trading and the advent of almost infinite new markets, trading is set to take on entirely new dimensions. The $600 trillion presently invested in stocks, forex, and derivatives will be amplified and redistributed to (synthetic and prediction) markets with the greatest potential for returns. With only a dependable oracle data feed required, a plethora of unique markets will be available for trading.

Synthetic Assets can be formed that mirror assets like classic cars, Birkin bags, rare whiskey or wine, and Rolex watches, or they can be bundled into a Synthetic Asset dubbed the "Luxury Index," which emulates the average price of all luxury items. 

Similarly, Prediction Markets will render all beliefs and outcomes tradable, from classic betting on your favorite sports team to novel markets such as predicting pop culture or predicting the world's long-term future, or even the outcomes of wars. This way, the concept of a tradable market is transformed forever, as you can genuinely trade in any medium you desire within the cybereconomy.

Invest in What You Love: The DeFi Matrix and the Rise of Cultural Assets

Investing in traditional companies or commodities might be fine for some, but it doesn't capture most people's imagination. However, in the DeFi Matrix, almost anything with 1000 true fans and a data feed can be transformed into a tradable market - from products and influencers to opinions and other objects in the broader idea of the Great Online Game.

The rise of "meme stocks" may have been just the beginning. If buying an NFT can be seen as investing in culture, why not trade things that people actually understand and care about from their culture rather than trying to decipher the ins and outs of boring company financial statements? Or, invest in creators like in stocks.

Consider a synthetic asset representing cultural icons, such as the illustrious "Jordan 1 Retro High OG" sneaker. Envision expanding this concept to encompass every renowned Jordan shoe, resulting in a grand Jordan Sneaker Index that encapsulates the very essence of Jordan brand footwear. Moreover, by integrating social media follower metrics, Spotify streaming data, and the average price of the Yeezy Fashion Collection, we can create assets, such as the highly coveted "Kanye" token and invest in creators like in stocks.

One could even push the boundaries further and consider creating a completely outlandish Cookie Index by tracking the prices of its primary ingredients, such as Cocoa, Wheat, Butter, Sugar, and Eggs, on futures markets. Alternatively, we could fabricate a synthetic asset of the top-performing cannabis strains, introducing a new realm of investment opportunities. In the world of trade, the DeFi Matrix could become akin to the Willy Wonka chocolate factory, with many assets beyond our wildest imagination waiting to be discovered and invested in.

The Cryptographic Proof of Alignment: How Policy Trades Can Ensure Accountability in Positions of Power

Furthermore, individuals could potentially find greater appeal in trading assets that have a tangible impact on their day-to-day lives, such as pharmaceuticals, health metrics, or climate metrics. For example, these assets could be grounded in metrics such as the cost of essential medications, obesity rates, cancer rates, or CO2 emissions.

By utilizing such a system, individuals would be empowered to speculate on the efficacy of policies implemented by politicians, thereby creating a mechanism through which companies and policymakers can align their interests with those of the community by investing their capital in tandem with their public declarations. This opens up a new dimension to whether a big pharma corporation is committed to decreasing the cost of medications or if its true incentive lies in keeping prices high. Similarly, the question arises as to whether or not a politician is truly committed to improving obesity rates or if their non-binding promises are nothing more than a performative gesture for public relations purposes. With the advent of this type of asset trading, investors and citizens alike would be able to gain greater transparency and insight into the actions and motivations of those in power.

Similar to how proof-of-reserve offers cryptographic evidence of keeping promised reserves and aligning with customers, engaging in policy trades should offer cryptographic proof of alignment with the community. This would be analogous to how Roman engineers had to stand beneath bridges while a legion marched over them to demonstrate that they were structurally sound.

A recent example was provided by Balaji Srinivasan, who publicly entered a bet on his belief. In his case, he was wrong, but he also suffered the consequences of losing his own money, unlike government that can gamble away taxpayers money.

Monetary Darwinism: From Cash is King and National Monopolies to Minimum Necessary Currency and Global Competition Monetary Competition 

As Balaji coins the term "minimum necessary currency," he believes that every excess unit of fiat beyond the necessary minimum will go to seek higher returns in the DeFi Matrix. Cash, as Balaji suggests, does not make you money, but AMMs enable global yield farming 24/7. Therefore, instead of holding large amounts of fiat, people will run a search to find the best return for their assets in a completely liquid global financial market. All of this leads to arbitrage in the DeFi Matrix.

The DeFi Matrix can be seen as a force that will dissolve regional monopolies in the national currency market, just as Google News did with content and regional newspapers. As all currencies go on-chain, even CBDCs must compete on values. That will provide a check on the power of the CBDCs, which could eventually lead to the rise of BTC on the leaderboard of currencies as currency substitution becomes more prevalent. It is the beginning of an era of global monetary competition.

From Misaligned Governments to Network States: Leveraging Cryptohistory and the DeFi Matrix

Network States can become the ultimate beneficiaries of the DeFi Matrix by tapping into the core principles of Cryptohistory. At first glance, this might not appear self-evident, but the fusion of the DeFi Matrix and the on-chain log of data can transform every facet of society into a synthetic asset or on-chain metric. 

This creates an unparalleled level of verifiability, potential for shadow statistics, and financial alignment, spanning from the grassroots community level to the national level across all sectors. Network State will be able to create a meta-footprint asset that spans physical and digital realms with real estate, domains, and communities. Further, by bundling multiple metrics across the physical and digital domains, Network States may create a new variation of the “Overall Empire Score.”

Indeed, coupling a Synthetic Asset to the performance of a Network State can offer a potent incentive for citizens to become early adopters and contribute to the State's flourishing and progress. This creates an opportunity for members to develop a stronger sense of alignment and community through a shared mission, working together towards a common objective and sharing the bounties that come with it. Or exit, in case the government is too fake to tell and you will lose money when the leadership is constantly making bad policy choices.

“It starts as a one-person startup society and becomes a million-person network state that owns a global archipelago of physical territory.”

Accordingly, nation-states with imprecise and unverifiable governance structures, flawed monetary policies, overly woke cultures, unreliable datasets, and principal-agent issues will face significant obstacles compared to (network) states with superior datasets, verifiable governance with financial incentives, transparent real-world metrics, and dashboards for measuring success. With the rise of dashboards, everything instantly becomes comparable, and states will have to compete for people on a range of values beyond simply providing competitive CBDCs.

Consequently, we could transition from a world of closed trade and misaligned governments to one of open network trade and aligned governments. This entails moving away from Milton Friedman's classic definition of government as an entity that "spends somebody else’s money on somebody else, not being concerned about how much it is, and not concerned about what one gets" to Lee Kuan Yew's vision of a government that "gives every citizen a stake in the country and its future."