How to get DeFi out of the niche? Open finance gives you the answer

How does blockchain achieve large-scale applications? This problem is already the most urgent problem for the booming industry.
Many hot spots have arisen around this issue, such as the "public chain" in 2017 and the "DApp" in 2018. Each time the hot spots were raised, it seemed that we saw the hope of the industry moving forward, but the results were always unsatisfactory.

Decentralized finance (DeFi), which has high hopes for 2019, describes a moving and promising future, but it is still difficult to move from the niche community to the mass market.

The systematic arrangement of the Ethereum DeFi ecosystem, involving more than 100 projects, source: Block Genesis, 2019.03

The gap in this is due to the very different attributes of the two groups:

It seems that highly capable and exploratory hackers are naturally at odds with businesspeople who are paramount and service entities.

This divide is not inevitable. During the development of the Internet, the process from free software to open source software is a typical case.

We look forward to reviewing the history from free software to open source software, combining the current development difficulties of Defi and finance, and giving a bright light.

"Free software" that started in the hacker community

"Solving a problem out of interest, whether it's useful or not, is a hacker."- Richard Stallman Founder, Free Software Foundation

Back in 1969, the world's operating system Unix was born at Bell Labs. This "nominal" operating system that will never be open source has in fact been freely sharing source code among hackers in the Unix community.

For hackers, being banned from knowing the technical details of an excellent technology prevents them from benefiting from this technology and creating new technologies. In the Unix community, the barriers to information are broken, and the free exchange of technology allows hackers to understand the technology in depth and continually conceive new technologies.

Sometimes it is difficult to imagine why hackers are so obsessed with open environments, and perhaps the protection of the soil where creativity grows freely is also protecting the hackers' own creativity. Among them, of course, the most influential was Richard Stallman, who launched a free software movement with a natural fighter spirit.

"Fully open! Go to copyright!", Declare war on the copyright system.

Free software starts with the GNU Project. The GNU Project expects to develop a 100% free, Unix-compatible, portable operating system. Finally, in 1991, Linus Torvalds wrote the GNU-based kernel core components, which made the GNU / Linux system widely used and made the concept of free software more widely known. The New York Times of 1989 even called Richard Stallman "the last hacker."

The Father of Linux: Linus Torvalds
He believes that what is made on the Internet is different from what is actually made, and they can be copied in large quantities for free, so there should be no restrictions and they should be "freely distributed . "

Richard Stallman has spent a lot of time promoting his concept of free software, and also proposed the concept of Copyleft as opposed to Copyright to protect this freedom of free software: it allows others to modify and distribute works arbitrarily, but the behavior of distribution and modification and The practice is also limited to copyleft.

Richard Stallman, with his influence in the American hacker community and his spirit of advocating freedom, attracted a group of top computer hackers to develop free software, and established the Free Software Foundation.

But at that time, the development of free software encountered a bottleneck.

The Dilemma of Free Software

Strange to say, the original intention of free software is to expect more software to be free from copyright restrictions and used by more people. However, the copyleft license enforces that developers who use copyleft must either keep their code in copyleft form or make it free to use.

This compulsory sharing agreement gives the end user maximum freedom, but also prevents developers from making profits, and loses the possibility of maintaining livelihoods by developing free software.

The copyright system of free software and intellectual property rights is hostile and has not been integrated into business.

Richard has gone too far on the road to idealization. The free software movement expects everyone to first uphold a set of strongly restrictive rules with idealism, and then act in accordance with the rules. Although free software rules can bring sharing, but The environment was antithetical. The development of free software does not bring commercial returns, making its influence difficult to expand.

In fact, the promotion of free software is very difficult. After the release of GNOME 1.0 in 1999, the people using and maintaining it were still confined to the hacker community. Free software has gradually become a mysterious existence in the hacker community.


Open source software forks free software

Open source software originates from free software, but it is a completely different story.

After the advent of Linux, Linux and other open source projects gradually separated from GNU. It is ridiculous that an important reason for the separation is that the Linux development collaboration team cannot tolerate GNU's centralized small-team workshop-style collaboration model, and requires a distributed approach.

Bruce Perens (one of the founders of Debian) defines the core of open source software as open source code and shares the code that has been developed or is being developed, which does not restrict people from using those open source code for commercial purposes. This approach to embracing the market also further allowed the open source culture to quickly spread and be widely used by the developer community.

"The Free Software Movement fights for the computational freedom of users; it is a movement for freedom and justice. Instead, the idea of ​​open source values ​​practical advantages over principle benefits."

Borrowing the original text of the Free Software Foundation, we do see a clear difference between open source culture and free software culture.

Open source software has finally become mainstream

Most people don't want a fight, they just want to learn more quickly and improve the quality of the project. Open source code collaboration can gather the creativity of everyone and continue to create on the wisdom of the most predecessors, making the creation itself more effective and convenient.

On the other hand, the wide spread of open source culture benefits from the development of Github, which makes global collaboration and sharing very convenient.

When Github allows the most dedicated people in a specific field to collaborate and share the results more widely with users who need the results, and can quickly collect feedback and respond immediately, this has led to this group of the best people More effective, clearer and more creative work. These steps are implemented on Github without exception by simple tools.

The goal of open source is like a life attitude, sharing those good things, looking forward to better appearance, and looking forward to becoming better. Therefore, we will find that open source is very natural, because this is the most correct posture to deal with the world of information overload at present. So by 2015, even Microsoft finally chose to embrace open source software and the open source community.

Inspiration of Free Software to the Dilemma of Decentralized Finance

After reviewing the fork of free software and open source software, perhaps we can easily find the commonality of the dilemma of scalability of decentralized finance. Free software emphasizes ideological opposition too much, ignoring people's actual needs and social acceptance. .

Hackers are an alternative group of people who create and expect to solve difficult problems based on their interests. So, for them, solving the technical problems of the world is their fun, and the creative process itself gives them enough returns, so that they don't have much energy to think about some obstacles that users will actually encounter.

This is normal, but the path between solving problems and serving the actual needs of people is always longer than hackers think. Hackers who are keen on decentralized finance have exactly this strong tendency, and look forward to enabling blockchain technology to solve all the problems caused by centralization by solving technical problems.

But in fact, really great hackers often can think further. When they create great works, they are also concerned about the benefits and benefits that others can get, and they are even willing to reduce the gains they can get. Focus on the needs of actual users and use superb technology to serve these real needs.

Satoshi Nakamoto, the founder of Bitcoin, gave us a very positive example. It was the transposition of the interests of BTC defenders that prompted him to design a POW reward mechanism .

Decentralized Finance (Defi) Scalability Dilemma

Let's go back to the dilemma of decentralized finance and see how this dilemma is caused.

It is expected that the distributed ledger will have decentralization, scalability, and security at the same time, which is called the "trilemma" by the industry. From the current point of view, it is impossible to achieve both at the same time.

Decentralized finance pursues decentralization first, and it is always considered that decentralized finance must first do it. If "decentralization" is placed in the highest position, then security and scalability can only take one of both . Security is the core of finance. Naturally, "scalability" is the lowest of the three attributes, and it is difficult to make a breakthrough.

So since open source software has let go of the "absolute freedom" of free software and has achieved the prosperity of the moment, we may also follow this line of thinking and pursue the "decentralization" of decentralized finance, and look at what Defi wants to serve The real needs of the object.

Difficulties encountered by traditional finance

The object of decentralized financial services is the same as the object of financial services. So what is the real pain point of the current financial system?

When ordinary people face the complicated financial products introduced by bancassurance securities, they are always prohibitive. There are many recommendations from "experts", but they are mixed and cannot be identified. Traditional insurance contracts, fund specifications, and wealth management products are confusing to ordinary people. The understanding of contract regulations in the financial system and the understanding of code are completely different. Many conditions are more or less intentionally hidden. You need to guess the intent behind it, which greatly weakens the service of finance for ordinary people.

If commerce is a market way for humans to allocate resources efficiently, then finance is optimizing this allocation of resources.

From a historical perspective, the accounting system now allows corporate finances to be transparent and open, and has achieved joint-stock companies, while the financial market allows shares and other securities to be listed and traded freely, so that capital flows are more adequate, and the purpose of finance is to help the people served and served. Have easier interactions, break the deadlock of distrust due to interests, and enable each other to better collaborate and exchange and share resources; help public resources be better managed in a unified way, and allow supply and demand side to establish more direct Relationship.

In the pursuit of optimal resource allocation, centralization has never been the primary issue. If there is a central organization or individual that is particularly reliable, capable, and adaptable to change, and only does good deeds, then trusting the central organization or individual is the most labor-saving and economical way. The core question is, in what form should resources be concentrated and dispersed, which is best for overall development?

We have seen too many scenes, no matter in the name of the organization or the name of the individual, it is like a black box. When we focus resources on this black box, we cannot know the direction of the resources, which makes the organization evil or Motivation for excessive rent seeking.

The increase in rent-seeking costs has led to a lack of sufficient transparency within the organization, which has reduced trust within the organization. In a complex system where altruistic people are constantly damaged, people can only survive through self-interested behaviors, which greatly increases the cost of resource allocation and exchange, and runs counter to the purpose of finance itself.

This is a good way to understand why "decentralized finance" is so exciting. But the core is still not "decentralization", but to make it easier for more people to use finance.

For this purpose, we feel that using "open finance" instead of "decentralized finance" can better serve this goal.

Agreement, make finance more friendly

How to make finance easy to use by more people?

In our opinion, the invaluable treasure that Defi has given us is that it can make financial services no longer "platform-based", but rather "protocol-based . " Open finance, of course, also advocates financial services agreement.

What is the difference between "agreement" and "platform"? In a word, the difference between a protocolized application and a platform application is that the protocolized application itself is a service , or the service provided by the protocolized application is itself. The core problem that Defi solves is that the process of value transfer can be completed at the same time when the protocol application is used.

From "platform" to "agreement", this change is huge. If the process of providing services and the process of collecting service compensation are independent, then friction will occur in the process of binding services and payments, and Defi will be distributed through Ledgers and smart contracts to complete this binding process.

For simple logic like borrowing, you can use smart contracts to build processes without human intervention, and for some complex logical scenarios, this binding process also requires some human intervention, so smart contracts and Oracle also Node maintainers and other roles will be added, but compared to the traditional platform business model, it is much more convenient.

This is an indisputable trend. More and more Internet industry giants are beginning to understand that protocolization can eventually replace platformization, and they are looking forward to a self-reform. Problems that cannot be solved by the super platform can be solved through protocol services.

Jack Dorsey, the founder of twitter, tweeted publicly that "the recommendation algorithms of social applications cannot be open source, and users have no freedom of choice. At the same time, social applications, for their own benefit, will push content that attracts attention, not the user What you need. "

In addition, for platforms, when the number of people grows exponentially, the crisis of trust will become more serious, and Facebook ’s privacy leak scandal is an indisputable example.

Therefore, if financial services are to be protocolized, each financial service can freely choose the required node configuration method according to the scenario. With the help of blockchain technology, regardless of single-center nodes (platform mode), multi-center nodes (alliance mode) ), Decentralized nodes (public chain model), and other methods can become possible items. This has greatly increased the flexibility and convenience of financial services, and played a better role in optimizing the allocation of resources.

Open finance is the way to break the situation

Let's take a look at Multicoin Capital's note on open finance:

"By integrating units of value, such as stocks, bonds, real estate trusts, cash, and programming into the development ledger, capital markets will be more accessible and efficient. Just as the ever-increasing market over the past 100 years has produced orders With incredible wealth creation, development finance will make capital markets more efficient and accessible to everyone. "

Does it feel natural? Further, open finance uses distributed ledger technology to support all value transfer processes through an interface on an open ledger, and through common open source combinable smart contracts, ordinary enterprises and individuals can more easily build Meet your own financial services.

Yao Qian, the general manager of China Securities Depository and Clearing Corporation, clearly stated in the article "New Blockchain-based Financial Market Infrastructure":

"The deeper meaning of asset digitization is that data information will be native, can be penetrated and traced, and can be self-certified and other evidence, thus extending from the financial model, the economic prospects and significance are immeasurable."

From a financial perspective, assets are always the core. The "self-financing model" pointed out by Yao Qian allows digital assets that can be self-certified and other evidence brought by the digitization of assets, which greatly simplifies the threshold for ordinary people to use financial services. In other words, the infrastructure of open finance allows assets to truly return to the financial standard. Ethereum has taken the first step to distinguish between Fungible Assets and Non-fungible Assets, and recently Algorand 2.0 has more explicitly proposed the use of Algorand Standard Assets (ASA) to give Assets are classified.

In the ASA framework, one dimension of assets is substitutability, while the other dimension is restricted. In terms of substitutability, Agroland is different from Ethereum, and replaceable and irreplaceable tokens have been implemented in Layer 1. In terms of restrictions, many hackers deliberately ignore the development of this layer of functions because they do not like to be restricted. But in fact, the management and restriction of permissions are very necessary. The token implements Role Based Asset Control (RBAC) through the token manager, which allows Algorand to flexibly respond to various application scenarios. At the same time, it can also issue tokens that comply with any national or international regulations. It becomes very easy. We believe that this classification is critical to the application of open finance, and it is also worth learning and learning from other public chains.

Image from A16z blog "Open Source: From Community to Commercialization"

Thankfully, 2019 is the most prosperous year in the history of open source software, and we believe this is just a starting point. Open source culture gave birth to decentralized finance, with a respect for the hacker spirit, and a pragmatic service mentality. From another angle, I look forward to embracing open finance with you!


1. Why does open source mislead the focus of free software?

2. 15 years of free software

3. The New York Times: A Fight for Artificial Free Software

4. A monument in the history of free and open source software

5. What is copyleft

6. Why are many good software companies and developers willing to open source and share?

7. Multicoin: exchanges are open finance

8. Open source movement, from community to commercialization

How much decentralized finance is decentralized

10. Definition of Open Source Software

11. Open financial map

12. Algorand 2.0 — Technical Innovations and Use Cases