Thread by @cburniske

"DeFi Déjà Vu" by @mlphresearch is 💪. It adds rich historical context to financial innovation, relating the past to what we can expect from #DeFi if it continues to scale: placeholder.vc/blog/2019/12/1…

For those requesting a TLDR, there's a summary below 👇

"Innovators have a tendency to under-appreciate the reasoning behind the institutional and regulatory arrangement of existing systems, which represent the outcome of a long process of trial and error under constantly changing economic and political circumstances." -@mlphresearch

"In the crypto-financial industry, this is driven mainly by a justified appreciation for technological and societal change ('the old system is outdated'), but also a relative lack of experience and historical perspective given the youth of the industry." -@mlphresearch

To lend a young industry more perspective, Mario gives examples of “several instances in modern Western history in which changes in financial practice have contributed to economic transformation and made existing regulatory frameworks obsolete” (read the piece for those examples)

"Whenever innovation has enabled new forms of participation in financial markets, it has also triggered institutional reconfiguration, including new regulations to address concerns over consumer protection, market integrity, and social and economic stability." -@mlphresearch

If DeFi, Bitcoin, Ethereum & the rest of crypto continue to gain global social & economic traction, it's inevitable that we will undergo what Mario calls "institutional reconfiguration." We saw the earliest forms of it after the bull market of '13 & again in the aftermath of '17.

"Blockchain networks and the open financial system that is being built on top of them are part of an ongoing drive to hyper-rationalize and automate the global administrative infrastructure." -@mlphresearch

"Assuming successful scaling, it may result in creating bureaucratic systems of unprecedented scale in which human administrators are increasingly replaced with machines." -@mlphresearch

"On the one hand, this could bring incredible efficiency gains in handling information and facilitating transactions.

On the other hand, these systems may gradually evolve into a silicon cage of sorts."

-@mlphresearch

Silicon cage ~ "a society in which a growing # of decisions involve minimal subjective input, instead following a set of abstract, automatically executing rules of 'the system' that itself is too extensive & complex for any single group of humans to directly censor or govern."

"To a degree, this also applies to society as we know it today. But globally scalable decentralized computing networks that are systemically important but increasingly difficult to unilaterally control will make it much more explicit." -@mlphresearch

While not all roses, @mlphresearch's take on DeFi & crypto is simultaneously realistic & optimistic.

I think he'd agree it's the type(s) of governance and distribution of resources that will make all the difference, per his "field theory" piece: medium.com/@mariolaul/res…

If you end up reading @mlphresearch's piece & thinking it sounds like an echo of @CarlotaPrzPerez, that's because Mario both studied & worked under her. While it's great to have a rockstar mentor, Mario's work is original & valuable on its own & crypto is lucky to have him.

(Our running joke in @placeholdervc is in 50 years time @mlphresearch will be writing the crypto iteration of "Technological Revolutions & Financial Capital" 😉)