Our Approach to Decentralized Finance (Defi)
What DeFi means for our collective future, and where our organization fits into the DeFi framework
With the recent rise of Decentralized Finance (or DeFi), we want to outline how we got here as market participants, what DeFi means for our collective future, and where our organization fits into the DeFi framework.
For starters, we’d like to examine the following: the premise that Decentralized Finance should be seen as an outcropping of the larger push for universal basic income. This, in turn, can be seen as an evolution of banking. Following this line of thought, DeFi can be seen as a movement to serve the unbanked which we believe is still at the heart of the cryptocurrency / distributed consensus industry today.
Although Decentralized Finance has lofty goals, in its current form, DeFi still has a long way to go. Essentially, DeFi suggests that we replace most of the functionality and capabilities of the legacy financial system with decentralized counterparts that don't require human intervention or human management to deliver the function or service that we are used to.
A lot of these functions - such as transactions, storing value, moving value across borders, quantifying value, etc. - are already native to most cryptocurrency networks. Where this gets a bit sticky is performing more complicated functions, things that normally require some kind of arbitrator or oversight, most notably the underwriting on loans and credit.
We envision a future in which loans and credit are an unnecessary function of society. Instead, we leverage the governance tools of an economy and its inflation and distribution policy to solve all of the problems that we currently face by extending loans or credit to individuals or institutions. Rather than trying to make fancy Information Age versions of what are fundamentally broken and corrupt systems, we prefer to disintermediate systems entirely by creating economic environments which make them unnecessary.
That being said, there is a market opportunity for any organization or entrepreneur who wishes to deploy a tool or service that we might consider part of the DeFi ecosystem. We will be watching all of them closely, and any time one of them presents real utility that drives value back to the end-user, we will be seeking to integrate these solutions with the Anatha Nexus, essentially allowing all of our user base to access that functionality or utility.
Anatha Nexus allows users to create multiple instances inside of a single application, each with their own human readable address @USER and portfolio tracking, resolving a huge pain point for anyone seeking to manage money for different purposes or different people simultaneously. The platform enables portfolio tracking, personalization with multiple themes, in-app arbitrage, multi-currency support, multiple data visualization options, automated recovery tools, memos, and Anatha Rewards Account staking, which we will dive into in a future blog post.
Anatha will also create an in-house DEX in Phase 2 of our project. Our DEX will have a unique market-making mechanism leading to decentralization which will result in low gas fees and low spreads. Over time, we may collaborate with other DeFi projects to have the ANATHA token serve as collateral for instruments such as DAI.
Our security token may also have centralized finance applications- for example, when there is a liquid enough market for our security tokens, users may be able to obtain loans that are collateralized by our security tokens at a low interest rate.
Source: World Bank
At the crux of all of this is the idea of self-sovereignty, digital personhood, or what some of my colleagues call agency. Without personhood and all of the privileges and capabilities they entail, we find ourselves locked out of the world. We cannot lay claim to ownership of property. We cannot create new enterprises or entities. We may find it difficult, if not impossible, to raise capital for any meaningful endeavours. And, for the most part, we would be stuck living our lives on the edges of society struggling to simply function as a normal member of that society.
Sadly, this situation just described is what most of the world has to experience. The data I've seen recently suggests that more than 1.7 billion people are unbanked and only a small portion of the population has meaningful access to at least two reliable financial tools. That being said, any meaningful DeFi solutions must address the central issue of personhood to be truly effective.
Interestingly, many of the current DeFi applications solve inefficiencies by not making personhood a necessity to interface with their system. Decentralized exchanges for example do not care who or what you are, provided you own the private keys of the account that is interfacing with the exchange.
This is an elegant solution for now. But we believe we can and should do much better especially around giving people what we call meaningful access because it's not enough to simply give users access to an exchange or give them the ability to have a bank account. You must also give people access to capital flows. Specifically, the capital flows from the money supply itself with no intermediary and no rent-seeking middleman to either deny or restrict the flow of capital to those who need it most.
In this regard, Anatha stands out as unique in that we include every user in our system or more specifically, every subscriber or member of our system as a beneficiary of capital flows. That is, provided each person registers with a version of digital personhood known as a human-readable address. This is simply an identifier in a decentralized registry that cannot be revoked by any third party. Currently, any form of personhood that can be taken away from you is ultimately simply an attack vector. It's only a way for those in power to harm your family or your community.
We’re happy to see the decentralized finance sector blossom into something complex and hopefully meaningful. I believe that our organization sits at the crux of the matter in that. Anatha can give people a form of personhood with real utility. And this gives them the access to all of the economic activity associated with our system. At the same time, we are not locking any users out of any systems.
Another hallmark of our industry, and indeed something that should be imbued inside of the Decentralized Finance movement, is that we must work in a spirit of interoperability and cooperation as opposed to creating economic silos for the purpose of individual or organizational benefit. We will assert that organizations or projects that do not follow this mantra were subsequently competing with all of those that do as a united front. And that such organizations that participate in the added effort of interoperability and cooperation will have an environmental advantage ultimately ensuring they will dominate the market.
In the meantime, we expect to see many centralized organizations in projects attempt to launch things as part of the Decentralized Finance movement that are simply a modification of existing systems running on new technology. These things are still prone to many of the same problems we currently have in the legacy financial system. A good shortcut for figuring out which of these projects are the real solution is to think about which of these projects are simply rebuilding the problems of old. Do they require users to pass through KYC AML compliance or somehow require users to have any form of documentation or registration? Are these projects associated with a national government or large centralized institutions?
We see some advantages in allowing such systems to check or verify for existing forms of identification or registration. Indeed, our own project will have a component called Kevlar which allows people to act in such a way in which they never have to expose their identification to a human being. Instead, they can prove that they have identification to any organization or institution without actually exposing the information. At the same time, we will always advocate for systems not to make such registrations mandatory or requirements for access for any of their financial tools affecting overall functionality.
In short, we think centralized finance is extremely important. And we are going to see a myriad of plays attempt to solve some of the problems that centralized financial tools and centralized financial institutions have levied upon our societies. We would simply caution that we do not try to create faster more efficient versions of what we already have but instead use lateral thinking to come up with solutions that do not require any of the systems that we have and indeed make some of their functions obsolete.
We have plans for several solutions specifically around smart payments that allow users to do things that they could normally only do with the help of a centralized organization such as an escrow agency or legal team provide complex payments, contracts, organizations, or other entities with for example complex ownership and revenue share models that can simply interface with our software, completely sidestepping the need for a legal team or government registration of any kind.
At the same time, these solutions will get the same functions and emergent properties that we can only obtain currently by passing through a labyrinth of costly steps and processes which in turn wash billions of people out of the economy in a meaningful way and also creates a wild amount of friction and inefficiency that even successful organizations can buckle under.
At the end of the day, every human being that we have locked out of our economy, every project that fails due to regulatory friction, and every added overhead leads to an enterprise that does not bear fruit. And this is because of internal administration, the efficiencies, and lack of access to capital or resources that is ultimately a loss to all of humanity.
I still believe that competitive markets will give rise to products or services that benefit the end-user and at the same time help processes become more efficient and more accessible. The economic and regulatory environment will allow for these products or services to be delivered more efficiently at a lower cost. However, efficiency must be achieved in a way that benefits every member of society through platforms such as Anatha.
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