PANDORA’S BLOCKS

ecentralization is not only about the code; it can also be applied to communities. In an increasingly fragmented world, facing unprecedented economic and social challenges, the innovations of decentralized autonomous organizations (DAOs), decentralized exchanges (DEX’s), and decentralized finance (DeFi) allow global collaboration of likeminded entrepreneurs to innovate across borders in ways never before imagined.

The reasons for the blistering early success of this decentralized trifecta (DAO, DEX, DeFi) are many, but they start with the modern hunger for freedom. Every age has had its definitions of liberty, and in the hyperconnected world of 2021, there is broad recognition that many aof the traditional legacy systems of finance, government and society are in need of the same kind of radical disruption that has upended the economy through technology in the past 30 years since the dawn of the Web.

Let’s start with the DAO, whose roots go back to Ethereum’s early days and the concept that organizations can automate governance globally with smart contracts instead of legal structures, regulations and courts. Malta was an early pioneer in permitting DAOs, and in April 2021 the US State of Wyoming passed legislation legalizing the DAO as a form of LLC. The rapid ascent of Uniswap, which is both a DEX, with a $32 billion fully diluted token market cap, as well as a DAO governed solely by its token holders and subject to no visible jurisdiction, has raised the stakes on the prospective battlefield between traditional global regulators and well-funded technology innovators.

The DEX format allows global participants to trade with anyone else on a decentralized platform, often employing the even more recent development of the Automated Market Maker (AMM), which has led to an explosion of volume and liquidity for both Uniswap, and for Ethereum-based trades, and its Binance Smart Chain equivalent, Pancake Swap, which recently passed Uniswap in both volume and total value locked into smart contracts.

Just as the automation of stock trades led to the ascent of NASDAQ and the death of the trading pit of live brokers on the floor of the NY Stock Exchange (and elsewhere), there is a real threat to the global financial capitals that they will ultimately be replaced in a free marketplace by faster, better, cheaper DEX alternatives, just as discount brokerages killed off the retail brokerage business for the “too big to fail banks” like JP Morgan and Deutsche Bank.

Finally, DeFi, which has grown from a fragile experiment to a fast-growing $100 billion juggernaut, threatens to disrupt the global banking and bonds markets with smart contracts, liquidity staking and yield farming currently generating exponentially higher rates of return over traditional banks (infinite when compared to European banks paying negative interest). The masses have no understanding yet of the yields they are missing out on, just as the populace had few alternatives to authoritarian governments prior to “Arab spring” revolutions fomented on Facebook. Decades earlier, the fall of the Berlin Wall was precipitated by the “decentralized” communication vehicle known as the fax machine.

The globalization and decentralization of organization, trade and finance has also meant a decentralization of the traditional financial industry power centers (New York, London, Tokyo, Hong Kong), with the 2020-21 pandemic emptying out these pricey cities in favor of Zoom conferences from anywhere and a shift to low-tax and no-tax jurisdictions with innovation-friendly regulation. The best and brightest entrepreneurs have always voted with their feet, and this movement is accelerating with the advent of a global Blockchain network of payments and smart contract solutions that eliminates the need to deal with antiquated layers of middlemen and hostile, rentseeking jurisdictions for cross-border payments and global e-commerce.

Dubai has become a centerpiece to this important movement, reshaping itself to be the digital crossroads of Europe, Africa and the Middle East (a role played in ancient times by Constantinople, now called Istanbul). In the past year, this effort has accelerated with its opendoor approach to hosting both innovation and trade, but also physical gatherings (including the AIBC conference I’ll be keynoting in May 28th). Several innovative DeFi companies have sprung up in the UAE itself, including Sheesha Finance and EmiSwap. Other jurisdictions have set their sights on attracting DeFi companies, ranging from Singapore to Panama to the Comoros.

As entrepreneurs seek a way forward in a post-pandemic world, they are seeing that many of the assumptions about society and economy have been turned on their heads in 2020 and 2021. Will anyone ever question relying on a Zoom meeting as a viable alternative to hopping on a plane again? How can perpetual fiat money printing be without consequence? Must there not be far better alternatives to solve the world’s problems than the same inflexible hierarchies that got us into this mess in the first place?

One thing is for certain: the door to the future of the world economy has been opened, along with tokenization of physical and digital assets, and they cannot be un-invented. I refer to this paradigm as Pandora’s Blocks (and I am currently writing a book with that title). As superior solutions in need of understanding, then adoption, then cultural and governmental support, they will ultimately prevail.