The End-Game

The mission for most DeFi builders is to write lines of code that functionally can replace or challenge the Traditional Financial (TradFi) system. The legacy of TradFi is that there are layers-upon layers of inefficiency, and it's time that these layers be stripped or disintermediated. Most people agree on this.

"Legacy" is roadblock to innovation as inefficiencies increase and are layered upon over time. For this reason, large companies find it difficult to innovate, startups can take on the giants, and systems or networks fail to reach their most optimal states lest everything evolve into crabs.

DeFi isn't without it's 'Legacy' however. DeFi builders have to design-around computational constraints embedded into L1s resulting in protocols make huge sacrifices to capital efficiency. With the composability and interoperability between protocols, what invariably happens is that capital inefficiency is compounded resulting in fragmented liquidity thus pushing DeFi away from its goal of challenging TradFi. As time passes, protocols furthermore need to re-integrate with their upstream primitives which is both costly and only incrementally more capital efficient. The path looks something like this:

With the above framework in mind, the ecosystem gets increasingly capital inefficient, and fragmented as time passes. We are nearing a local-max in this regard. There are two paths forward:

  • Decentralized-then-Improve Capital Efficiency: The status quo would be that the community continue innovating, but specifically addressing capital inefficiency and interoperability, hoping novel protocols will be able to both aggregate capital (e.g. a few initiatives) and/or provide more computation on-chain (e.g. zkRollups).

  • Hybrid-then-Progressively Decentralize: One builds within a hybrid centralized/decentralized environment increasingly decentralizing them over time. With this approach, the system is near-100% capital efficient on day 1, and doesn't require the financial overhead for downstream applications to re-integrate with each V2, V3, V4 build and so forth.

Infinity's approach is the latter.

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