Decentralized Finance with Tom Schmidt

Cryptocurrencies today serve two purposes: store of value and speculation. The application infrastructure that has been built around cryptocurrency is mostly to support these use cases. At some point in the future, perhaps cryptocurrencies can be used as a global medium of exchange that is accepted at the grocery store. Perhaps we will use the blockchain for supply chain management, and as a universal ledger for real estate ownership. But today, cryptocurrencies are mostly used for speculative trading. Users buy and sell different cryptocurrencies and stablecoins, looking to make short-term profits. And the markets for trading cryptocurrencies have evolved to have a sophistication that looks like the centralized markets of derivatives and leverage-based day trading. The term “decentralized finance” refers to this phenomenon of cryptocurrency lending markets. Decentralized finance increases the volume of speculated capital by providing liquidity through smart contracts. This short-term liquidity is often collateralized by a volatile cryptocurrency such as Ethereum, creating an opportunity for a type of market participant called a “liquidator.” Tom Schmidt is an investor with Dragonfly Capital, a cryptoasset investment firm. Tom joins the show to describe the dynamics of decentralized finance.