Owning the market and Decentralized Finance. A new Paradigm.
This is something akin to a fairy tale, just for discussion:
Take investing in the stock market via the US total stock market vanguard fund, this is a great way to capture market returns under the traditional business model of owning companies via stock shares. If E.F. Hutton goes bad, E*TRADE does well, that's great, who cares, Stock indexors win. Very cool.
What happens though if the following would occur?
Maybe, just in theory, a new paradigm comes along, a decentralized “business” model based on computer programable Money/Value that is not actually a business. Transactions take place, without the need for a traditional company to exist. Its crazily deemed by its market participants, that it is in fact much better that a company does not exist! They would rather interact with computer programs taking the place of the middleman/businesses. There are not shares in these crazy enterprises, rather tokens that are bought and sold for purposes of taking risk, sharing in profits, and governance of the decentralized enterprise.
Again, kind of just crazy stuff.
So now, 1 quadrillion world derivatives for a nice round number. Companies run this market, owned by shareholders.
2019 January 100 Million USD locked in Defi Contracts
2020 January 1 Billion locked.
Currently Feb 2021 36 Billion locked in Defi.
Small right? Who cares really?
Take money itself, 100 Trillion for a nice round number worldwide money.
Bitcoin, I will cede it is “rat poison” here as Warren Buffet is a genius no doubt, but regardless Bitcoin goes from zero to circa 1 Trillion Market cap in say 10 years(round numbers). Maybe just a 10 year year tulip run-up. A rat poison that people like? It just is what it is. It is extant. It is now 1 percent of world money supply. How it will do depends on people value it, just like any money. Fail certainly, when people come to their senses of course.
So say 10 years ago, bitcoin started to take hold to some measurable extent, say 2 years or so ago, Defi hit 100 million. Early days. May well both fade away.
But in terms of diversification over the next 10–20 years, maybe there is some small finite risk that the new paradigm of decentralized money, and decentralized finance, actually significantly begins to takes over and erodes market share from traditional companies? That say when E*TRADE loses market share…. it is not to an just another entity in the Vanguard stock index, that it instead it loses market share to a decentralized finance entity, and that the investors who benefit from that transfer, own tokens, not shares? The index holders will suffer a relative permanent loss, akin to investing in a single company in a sense, while the decentralized token holders will experience just crazy unbelievable gains?
Nothing to worry about one supposes. The market share of traditional businesses and their US TSM index holders will not be eroded significantly to decentralized computer programs and their token holders. Vanguard TSM index holders will continue to capture market returns.
For discussion though, some small percentage of people actually believe this permanent loss of market share of businesses to decentralized finance programs is not only what is likely to happen, but that it is in fact ongoing now. I may be one of them. But people will believe anything, even crazy things.
Just food for thought and entertainment.
Cheers : )