Since 2019, programmable currencies and contracts have become the basis for a new set of instruments, lumped under the label “DeFi”, or decentralised finance. It’s growing like topsy, and you can now invest with a regulated company and get a rate of return that’s respectable.
The new instruments themselves have some interesting properties: they’re faster, and can be more efficient at discovering liquidity.
In the background, China is watching: worried about being blocked by sanctions from paying for the commodities it desperately needs. While banning crypto speculation and mining at home, it has been experimenting with payments using a CBDC (central bank digital currency).
However, if the beast of crypto finance is to be tamed, it is far from clear that the VCs’ approach is the right one, even if it stopped blocking people on Twitter at the slightest provocation.
One obvious error is Andreessen’s decision to try and brand crypto-finance as “Web3”. This hasn’t caught on widely, and has only invited scorn. The web is something only middle-aged people like to talk about – like Brian Clough and back pain – and few people born since 2000 know or care what it is.
Crypto fraud remains a real problem: with good reason, sceptics nickname it “klepto-finance”. The public demands trust, particularly at the point that digital numbers must be turned into a tangible, real world value like sterling.
Making life easier for money launderers seems a strange way of increasing trust, particularly after the conviction of Theranos founder Elizabeth Holmes for fraud last week.
Silicon Valley’s rhetorical model is one of bullying (or blowing very hard), and this is a hindrance here, not a help. Undoubtedly, some regulations need to be updated, but are these the right ones?
And do the VCs want to sell these new financial instruments to respectable institutions, or make the tools trustworthy by all, retaining some of their decentralised character? Or both? Perhaps Andreessen has not yet decided. And for the record, I did ask him last week. I’m yet to be blocked.
Respectability may never come to crypto finance, and DeFi will continue to grow in the shadows as a murky counterpart to the regulated capital markets. But if it does become respectable, then it will be because some of today’s crypto entrepreneurs have decided to shoulder some of that risk. And no thanks to the VCs.
Block Andrew Orlowski on Twitter at @andreworlowski
