Software is eating money, and every improvement in DeFi is a "software update" for ETH
Editor's Note: This article comes fromEditor's Note: This article comes fromThe Way of DeFi
, the author's overnight porridge, reproduced with authorization.
Note: The original author is bankless founder David Hoffman.
We all know the famous quote from Marc Andreessen:
"Software is eating the world."
Software has always been the death of the industry.
One day, it will come and will reshape an industry forever.
It seems that all industries are destined to become software-driven industries, and software has penetrated more aspects of our lives than we could have imagined just a few years ago.
Today, common household items contain computer chips that run software. Cell phones, watches, cars, lights, thermostats, beds, cameras, coffee mugs...they all run software to improve products and make human life more sustainable. Programmable and comfortable.
The pace of "software eating the world" has been relentless thus far, but it has been uneven. Some industries are more amenable to "software upgrades" than others, and readily accept the integration of software into previously mundane objects. Other industries need more time to find the best way to integrate software.
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Money is now on the long list of things that software needs to improve on, and it will be an interesting time in history to watch software upgrade our money!
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2 Software upgrade
Elon Musk likes to boast about Tesla's ability to "software upgrade" software that can increase a car's value as its software matures. Tesla has made several software upgrades in the past that have improved the range and efficiency of Tesla vehicles.
Perhaps the main reason software has started to eat up every industry it touches is its ability to improve and become more useful. If we don't have software today that can disrupt a particular industry...give it a few years and software will improve and disrupt it in a few years.
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3 ETH: an asset to obtain software updates
Ether is a "software update" asset, arguably the most unique and compelling asset the world has ever seen.
These improvements are appropriate and necessary, ETH has become very valuable, and security providers (referring to miners) are also severely overcompensated. However, improvements are also incremental. In hindsight, these tweaks might be seen as basic “maintenance tweaks,” the heavy lifting being done by ethereum researchers.
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4 Ethereum protocol upgrade
ETH is getting two major software upgrades that make it money.
Proof of Stake (PoS): ETH issuance is minimized while access to ETH issuance is maximized and democratized. Notably, PoS also officially turns ETH into an income-generating capital asset.
EIP1559: The economic scale of Ethereum makes Ethereum more and more scarce. As the Ethereum economy becomes "hot", more ETH will be burned. As the Ethereum economy cools down, less ETH will be burned.
We all know about these upgrades, and the entire Ethereum community has been singing this hymn for years. The coolest thing about Ethereum is that these are just protocol upgrades for ETH assets.
But ETH doesn't just get upgrades from the protocol.
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5 Every improvement in DeFi is an upgrade to ETH
As we all know, DeFi is known for a lot of innovation and iteration. Standing still in DeFi means quickly falling behind. Last week, I wrote "ETH: The World's Most Capital Efficient Asset", which illustrated DeFi's progress in improving the utility of ETH, and how this improved the utility of ETH every step of the way.
The main collateral asset in DeFi is ETH, which is really the only asset that can capture value in DeFi applications while still being "decentralized" finance.
This makes the growth of DeFi the fundamental driver of ETH's value growth. When DeFi is bigger, ETH becomes more useful.
At first glance, this may seem like an obvious statement, but it pays to understand it from a software perspective.
Every DeFi application deployed to Ethereum is an economic upgrade to the power in ETH. When a new DeFi application is built on Ethereum, it gives ETH new properties that it didn't have before.
ETH is undergoing a software upgrade.
Uniswap V3 is an ETH software upgrade for liquidity.
Aave V2 is an ETH software upgrade for collateral.
Tornado Cash is a privacy-focused ETH software upgrade.
Do you understand it?
All of this increases the options available to ETH holders in how they choose to leverage their ETH capital.
Money is power, money is options for the future, and the more money you have, the more power and choices you can have.
DeFi is working tirelessly to empower and choose ETH. ETH gets automatic over-the-air software updates and will continue to do so until Ethereum's last block.
Ethereum has been around since 2015, but DeFi has only really been around for 3 years. Until then, we've been fiddling with things that have nothing to do with money and finance. All the current DeFi applications that make ETH have so much power have only appeared in the past 3 years.
We only recently discovered what DeFi really is, and what benefits it has. I can only imagine how cool and powerful some of the future DeFi applications will be!
And all this before ETH became Ultra Sound Money at the protocol level.
As far as investing, I feel very comfortable owning an asset that is at the intersection of money and software. I dare not sit aside as humanity struggles against the conspiracies of two of the most powerful forces we have ever created.
Crab season is your friend. 🦀
