Building the DeFi Matrix
Disclaimer: Backed Finance and its tokens are not available for US individuals, are not marketed or offered in the US or other prohibited jurisdictions. For more information, please refer to our Terms.
In our last post, we announced Backed Finance — A new project building the infrastructure for tokenized stocks on Ethereum.
At Backed, we’re building on the notion that financial assets will become tokenized, freely tradable on the internet of money. We’re working on bringing more assets on-chain, without compromising on most of their off-chain qualities.
Introduction
A world where assets move on-chain introduces new dynamics as to how people trade, purchase things and retain their wealth. In this post, we’ll introduce some of those dynamics and potential behavioral shifts in a world where all assets trade on-chain, originally described as the ‘DeFi matrix’ by Balaji Srinivasan.
Wealth Preservation On-Chain
Today, people preserve their wealth by holding assets that rise in value over time. At the same time, they spend fiat money that loses purchasing power over time. One of the key advancements in a world where all values trade on-chain, is the decreasing need for a single intermediary means of exchange (i.e the US dollar).
In the DeFi Metrix, all assets are tradable through permissionless systems, can generate yield by default, and accrue value. The need to hold fiat money decreases as it loses its core value characteristic of being the only fully liquid, fungible asset. People can suddenly shift to holding more of their wealth in value accruing assets on-chain, trade them directly with other assets, and benefit from a more efficient, connected market.
Example: why sell ETH to USD on Coinbase, then go buy TSLA with that USD on Robinhood, if you could trade an ETH <> TSLA pair directly on an AMM.
One immediate benefit of the DeFi matrix is that some assets can trade directly with goods and services, and other assets that are independent of the fiat money system. That can potentially minimize inflation, and also improve purchasing power with yield-generating activities (i.e yield farming).
A Behavioral Shift
Internet-native money was the first to enable the underbanked access to an open financial system. And still, most financial assets are currently accessible only to those with a traditional brokerage account. One of the key changes we aspire towards making is the shift to have more assets accessible to everyone. As more and more people are growing up with internet-enabled smartphones, the more natural it becomes to use an open system that doesn’t require human trust. The world of finance is shifting from trusting legacy to permissionless, code-trusted systems.
Today, crypto assets are still detached from stocks, bonds, and most commodities. They have different technology standards, settlement mechanisms, and regulations. That is why these cannot trade directly with internet-native assets like cryptocurrencies. Backed brings more assets on-chain, and enables a behavioral shift in investing, trading, and using assets.
There are two approaches to converging crypto assets and traditional ones:
- On-chain → Off-chain (Bitcoin spot ETF, traded on NYSE or Nasdaq); These are efforts to bring crypto-assets to legacy financial markets, and have them traded as traditional assets like stocks, trusts, ETFs, and more. Grayscale’s GBTC product is a good example.
- Off-chain → On-chain (Stocks represented on-chain); This approach takes traditional, legacy assets like stocks and bonds to permissionless Blockchains. Examples can include Circle’s USDC — a digital dollar, and Paxos Gold as a commodity trade on-chain.
While the first approach is invaluable to the growth of crypto as an emerging asset class, Backed chooses to focus on the latter approach (bring more assets on-chain), aspiring to allow users to invest, manage and trade their equities from their crypto wallet. This is a non-obvious bet on new generations that are likely to own a crypto wallet before they get a bank account.
While our approach may be more challenging, it unlocks more value because of the use cases that are only possible on-chain. These are behaviors will get introduced for the first time because those assets will have existed on-chain.
Summing up
Enabling more asset optionality on-chain is a key starting point in a DeFi native world, where people trade assets, values, and commodities digitally. While the first value-unlock may be the trading of financial assets, we remain confident that more use-cases will get unlocked with time and enable more value to investors.
Over the next few months, we will dive deeper and explain some of those, which include: borrowing, lending, liquidity providing, on-chain derivatives, and more. In the meantime, we invite you to engage with us on Twitter and LinkedIn as we continue to unravel more details about our upcoming product launch and ecosystem partners.
If you have any questions, business inquiries, or partnership proposals, please reach out to us at contact@backed.fi
About Backed Finance AG
Backed Finance was founded in early 2021. We raised our seed round in May 2021 with support from Gnosis, Semantic Ventures, and Stratos technologies.
We are a fully remote team, headquartered in Zug, Switzerland, actively hiring for UX, legal, design, marketing, and engineering roles.
