All language subtitles for subtitles-en (1) (1)

Let's start the first course
at DeFi Infrastructure.

Well, we'll do actually
four different modules.

The first module is the history
of decentralized finance.

It's got a number of components.

It's actually interesting that

decentralized finance has
got rather a long history.

It's not just the
last few years.

We'll explore the
nature of money,

and this idea that
money can have

tangible and intangible value.

We will give a brief overview

of the problems that

are endemic and centralized
finance or CeFi.

We'll go into much more
detail on that later.

We'll talk about early CeDeFi,

so that's centralized
decentralized finance,

and I'll let you know what I
mean by that at the point,

and of course, the
crypto origins.

The second module is
DeFi foundations.

The third addresses in

much greater detail the
problems that DeFi solves.

The fourth module has to do with

the popular myths about
decentralized finance.

I'll try to go through and
explore each of these myths

and keep you a
better understanding

of what actually is
happening within the space.

Let's start with
the first module,

the history of
decentralized finance.

Evolution. How I
really mean evolution?

It's been quite a while

in terms of
decentralized finance.

If you go back in time,

think about the
earliest method of

market transaction.
It was barter.

Interestingly, barter is a
peer-to-peer technology.

This is essentially the
first decentralized finance

where we've got peers
interacting with each other.

But the early barter was
very, very inefficient.

You want a cow and
you've got two goats,

you need to find
somebody that's got

the cow and wants the two goats.

So very, very difficult.

Indeed, what actually
happened was

that a system of credit
evolved or gifts,

it was called, where you give

somebody something
and then they would

give in return at

some other point a surplus
of what they actually had.

Again, this type of market
economy, very inefficient.

The main inefficiency was
the matching problem.

You had to have

an exchange that made
sense to both peers.

Money was introduced and it

largely solved the
matching a problem.

Let's go through the
purposes of money,

and I put them into two groups.

One is a unit of account.

This is a way to compare

the value of different
goods and services.

Number 2, which is the
most important quality,

is a medium of exchange.

This allows us to get

around the barter that
we can use money.

I put this secondary,
but many people put

this primary a store of value.

This is the idea that
you could sell your

good for money and
effectively store that value.

If you kept your
good, it might spoil.

It allowed for some
savings and insurance.

The fourth attribute is
a transfer of value.

It actually makes it
very easy with money

to transfer a value
or to defer a value.

What about the
characteristics of money?

Number 1, it needs
to be durable.

Ideally, you can use
it multiple times.

Coins, for example,
are very durable.

Paper money or a plastic

money as we have
learned actually today,

that is not as durable,

but there's a system
of recycling so

that the old paper is
replaced with new paper.

Portability. You need to be
able to carry it around.

There's some exceptions
here that I'll talk about,

but a very important attribute
is just the ease of use.

The third attribute
is divisibility.

We all know that a dollar can
be divided into 100 cents,

so fractional units
are important also.

Uniformity is also an
important attribute.

Basically, one dollar
that was printed

last year has the same value

as one dollar that's
printed this year.

The next one is limited supply.

I think, I have a good
intuition as to what happens if

supply becomes unlimited
or near unlimited.

We all know the stories of
severe hyperinflations,

whether it's in Weimar,
Germany or Brazil.

Where when the supply
gets out of control,

then the value or

the usability of the currency
is greatly diminished.

Another attribute
is acceptability.

The US dollar within the US is

legal tender for all
debts, public and private.

That means that you
need to be able to

accept the US dollar by law.

Because that's a very
powerful characteristic

for US currency.

The last one is stability.

This is a subtle,

a characteristic which we
will address in this course.

Because cryptocurrencies are,

in general, not stable.

But the idea here is if the
currency is very unstable,

then people will look
for alternatives.

These are the basic
characteristics of money.

This is an example of the
portability characteristic,

and people talk about returning
to the gold standard,

or some people talk about that.

Gold is not very portable.

This actually shows to move,

a lot of gold is extremely

difficult just because of
the weight of the gold.

A little on the security that's

involved in moving it from
one vault to another vault.

Let's do a very quick
history of money.

We'll start about 9000 BCE
with a barter economy.

We know a fair bit about this.

It's even portrayed in

various pictures that have
survived to this day.

As I mentioned, this
was very inefficient.

It took a long time but

gold coins were introduced
about 600 BCE in Lydia.

This solved many problems that

were caused by the inefficiency
of the barter system.

These coins actually have value,

so They have tangible
value because gold,

even back in 600 BCE,

was used for other things.

It was used in the
arts as it is today.

Indeed, 70 percent of

the gold that is used

today is used in
things like jewelry.

Gold actually has
a tangible value,

whether it's for jewelry or
technology or dental work,

It's got other uses.

Banknotes came from China

and Marco Polo indeed
introduced the idea to Europe.

They, again,

have a long history.

But this was the
first paper currency.

This is a special one for me.

1871 is the date

of the very first wire
transfer by Western Union.

This is an example of
what it looked like,

so that actual paper
has been preserved.

What I'd like you to notice
is the amount, $300.

But there's also something
else that's interesting in

his transfer and
that is the fee.

Notice the fee is nine
dollars, three percent.

This is 150 years ago.

Even today, we've got
essentially the same situation.

You swipe your credit
card, three percent,

you send a wire transfer,

three percent or more.

It's remarkable to
me that we've gone

150 years without greatly
reducing our cost.

This again motivates where

we're going in terms of
decentralized finance.

Credit cards introduced in

1950 with the Diners Club Card.

They've been around for a while.

1967 is the first ATM

and that was introduced by
Barclays Bank in London.

Telephone banking,
which is routine

today reaches back to 1983
with the Bank of Scotland.

Internet banking, not surprising,
came from California.

The Stanford Federal
Credit Union offered for

the first time a way to do
banking via the Internet.

Contactless payment,
this was introduced by

Mobil in the form
of its speed pass.

It's interesting
application because

swiping a credit card

at a gasoline station
actually is very risky

for the credit card
company because

often when a credit
card is stolen,

the first place that's
tried is the gas station,

and the fees associated with

a credit card swipe at

a gas station traditionally
much higher than,

let's say a restaurant,
like five percent.

Mobil realizing that they
could basically give you cash

back and still be far better

off than if the customer
swiped with a credit card.

Chip and PIN was
introduced in 2005.

It's interesting to me
given the insecurity of

credit cards that
the PIN part is

largely not implemented
in the United States.

2008 is a big year.

This was in the depths
of the financial crisis,

and we will talk about this in

much more detail in the course.

But in 2008, a
famous white paper

was put on the Internet
by Satoshi Nakamoto.

We don't really know
who he, or she,

or whether it's a group

of people that
authored this paper,

nobody knows for sure,

but we do know that this
paper was transformational,

a highly impactful
paper in finance.

We will go through some of
the details in that paper.

To be clear, this course is

about decentralized
finance and mainly focuses

on Ethereum and applications

of the Ethereum blockchain
rather than Bitcoin.

But nevertheless, we will talk

in some detail about Bitcoin.

It is the first cryptocurrency
and a bellwether,

and indeed its market
capitalization

is roughly 1/2 of the value
of all cryptocurrencies.

This was an important
innovation,

and we know in 2014,

Apple Pay was introduced,

a much more secure way to do

a credit card because
using facial recognition,

or a PIN directly,

whereas in the US at least

people aren't required
to use a PIN.

The deal that Apple got with

the credit card companies
was a very good deal because

any payment with Apple Pay is

much lower probability
of a fraudulent payment.

The world of blockchain really
exploded in 2020 and 2021.

Essentially, all leading banks

have blockchain initiatives.

They know now that this
is not a niche product.

This is something
really serious.

It is a serious threat
to their business model.

Indeed, the CEO of
Goldman Sachs said,

"Assume that all major
financial institutions around

the world are looking at the
potential of tokenization,

stablecoins, and
frictionless payments."

They're not just looking at it.

They have teams of people

trying to figure out
what they can do.

They realized that they
have to reduce costs.

It's unacceptable
what the costs are,

and the competition via

the decentralized finance
space is after them.

There's also, and we'll
talk about in the course,

a lot of regulatory risk.

But in general,
regulators that are

at least economists realized
that reducing frictions,

reducing transactions
costs, making

transactions more efficient,
that's a good thing.

There's a lot of things, well,

actually almost
everything in economics,

you can get one side
versus the other side.

There's very few things
that economists agree upon.

But one thing that
they agree upon

is that if you reduce
transactions costs or frictions,

that's a good thing for
the economy in general,

for everybody in general.

There have been many positive
initiatives and indeed,

the OCC has granted
permission to

use stablecoins as a
more efficient way

of doing transfer,

and we will talk in detail

about what stablecoins
actually are.