We all like to root for the underdog.  Whether it’s a David and Goliath story, the Mighty Ducks, Eddie the Eagle, or that couple down the street running their startup in the garage.  There is just something about seeing someone who is outmatched, outfunded, and outclassed, overcome through intense focus, endless persistence, and the sheer will to overcome the odds.  

Sometimes we get to see the real story, but more often than not we see the big guy crush the little guy.  We live in a world where mega corporations absorb those around them, outprice through economies of scale, and hold that incumbent place by all means necessary.  In some areas, this is easy to see, like with giants such as Amazon, Google, and Apple.  Other monopolies are harder to see because we’ve been so accustomed to their being our only choice.  One of the biggest of these monopolies is traditional finance.

TradFi has such a hold on our society that until the emergence of blockchain, few people saw any alternative to a centralized handful of companies, using government-backed currencies, force people to use their services for any non-cash activities.  Payments, transfers, loans, investments—all of these are controlled by a small group of international giants.  The problem is so widespread that it can be hard to see it as a problem, but rather as “just the way things are.”  In just describing the situation, it can almost sound like a conspiracy theory.  However, it isn’t, because these facts are not hidden, they are just the way the financial system has been for many decades.

Blockchain has changed the world in a number of ways, but more than anything it has shown that the bedrock of TradFi doesn’t have to be the only option.  While this has given rise to impressive platforms and a growing ecosystem, the David and Goliath scenario doesn’t favor blockchain catching up any time soon.  TradFi has long enjoyed being able to charge high transfer fees and interest rates on loans, with little competition outside of the few players in the industry.  Indeed, this lack of competition has allowed the financial infrastructure to age terribly, with programming languages like COBOL and Fortran, over 60 years old, still act as the foundation of the larger financial system.  

With all of that, however, blockchain’s DeFi has very little chance of catching up under its current state.

The Problems

So why would an old, crumbling institution still be able to hold so much power over a younger, more agile methodology that is superior from a technical perspective?  Well, TradFi has a few very strong things going for it, and DeFi has some fatal flaws that will be extremely difficult to resolve.  

TradFi has the enormous advantage of “status quo”.  With something as important to our society as the monetary system, the phrase “if it isn’t broke, don’t fix it” has never rang more true.  Even though it is clear that the system could fail at any time, and that programmers who know these archaic languages are getting fewer and fewer, there is simply too big a risk to develop something new, then risk the entire world’s economic lifeblood to replace it.  Yes, this is going to have to happen someday.  But it seems that nobody wants to be the one to lead the way.  Ironically, this counterintuitive approach to risk is the same for other industries where risk tolerance is close to zero.  This is why both vehicle and rocket iterative designs happen in slow motion, with modifications being incredibly incremental.  It’s just not worth risking everything when it kind of works now.

DeFi on the other hand, has moved and evolved very quickly.  It’s transformed in just a few years to become a major financial ecosystem.  This has been amazing and has filled many with hope who would like to see a financial system that is decentralized, disconnected from governments, and is peer to peer.  Unfortunately, most evolution from DeFi platforms has been on a number of principles that were innovative at the time, but cannot scale to the size of a global system.  The smart contract as it operates today has several critical flaws: opportunities for security breaches, and the inability to scale to a speed and strength to handle a global system.  With Ethereum, we see both issues at play.  Any number of breaches have been caused by smart contract weaknesses, or from developers who did not understand the concept well enough to build a quality contract.  In terms of scalability, Ethereum 1.0 showed quickly how a system that can’t scale will become unusable and unaffordable for most use cases.  Ethereum 2.0 will improve on this, but will still hit a ceiling well before it can serve as a global financial system.  Looking beyond Ethereum, it’s unfortunate that the vast majority of platforms are either built using this structure, or one very similar.

An Elegant Solution

There is good news, however.  There are platforms who are looking to truly solve these problems and provide a stable, scalable solution.  One in particular, however, may just have a way to fast track the development of a global financial system; and it borrows tricks from both evolution and economics to make it happen.  The platform is Radix, and though their complete reconstruction of the smart contract, consensus, and scalability is radical (the WP is definitely worth a read), what is perhaps more intriguing is a key component of their development.   

To solve the smart contract complexity—which has resulted in a very small number of individuals who can correctly code a smart contract—the team took a completely different approach.  Similar to the object-oriented programming innovation, the team has developed an asset-oriented language – Scrypto.  This is important because it brings out those elements that a developer would use most: the assets.  By aligning the language around how the assets are affected, much of the confusion is simply gone.  With this, the pool of capable developers increases exponentially.

If we assume that Radix can solve some of the major issues with smart contract development, and that they have developed a method for true atomic composability (making transactions insanely fast while keeping reliability), the question becomes:  How do we create a best of the best, fully integrated, and completely global financial system?  TradFi has done this by hiring armies of programmers out of top schools, then hoarding them as they develop proprietary software.  Some parts of DeFi are doing this, developing platforms with a few good ideas, some average ideas, and likely a few weak points.  This doesn’t scale globally unless you recruit thousands of top programmers.  

But what if instead of recruiting, you simply created an open system that rewards excellent programming innovation?  This is what Radix has planned, and it has the best of both worlds:  First, when a programmer creates an innovative piece of code, they can offer it up for use; when someone uses it, the programmer gets a royalty.  Second, when the developer community gets free visibility into the top innovations, it inspires new innovation at an exponential rate.  And with a rating system, the top innovations naturally rise to the top, and the system evolves much more quickly using a “survival of the fittest” model on the code itself (if someone finds a flaw in the current design, they are incentivized to develop a fix and offer it to the community for royalties).   

Looking Forward

The incumbent TradFi is certainly on top today, and doesn’t seem worried about any rivals on the horizon.  However, with innovative techniques to incentivize, unite, and inspire a global army of developers—especially when those techniques are self-sustaining, naturally rewarding and balanced, and create a common benefit for everyone—the underdog may just be worth rooting for.

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