Software is eating money | Market Monday LITE
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Dear Bankless Nation,
We all know the Marc Andresson quote: “software is eating the world”
Software has been a grim-reaper of industries.
One day, it comes and it reshapes an industry forever.
It seems that all industries are destined to become software-enabled industries. Software has infiltrated more aspects of our lives than we would have predicted just a few short years ago.
Nowadays, common household items have computer chips running software in them. Phones, watches, cars, lights, thermostats, beds, cameras, coffee mugs… and they’re all running software that improves the product and makes human life more programmable and comfortable.
More and more, all of the products in our lives are one part thing, one part software.
The march of ‘software eating the world’ has so far been relentless, yet it is uneven. Some industries are more suited for their ‘software upgrade’ than others, and easily accept software integrations into a previously mundane object. Other industries need more time in order to find the optimal way to incorporate software.
Software has breached the walls of money and finance
Money is now on the long list of things that software has come to improve. Watching the process of software upgrading our money is going to be an interesting time in history!
Elon Musk likes to boast about the ability of Teslas to get ‘software upgrades’ that improve the value of the car as Tesla software gets more sophisticated. There have been a few Tesla software upgrades in the past that actually have increased the range and efficiency of the cars.
Perhaps the major reason why software comes to consume every industry it touches is software’s ability to improve and become more useful. If we don’t have the software to disrupt a particular industry today… just give it a few years. Software will improve and disrupt it in a few years instead.
Ether: A Money that gets Software Updates
Ether is an asset that ‘software updated’ itself into arguably the world’s most unique and compelling asset of all time.
Every Ethereum hardfork that has adjusted the monetary policy of Ether has done so in a way to make it more scarce, and make Ethereum more sustainable. These initial upgrades have been simple downward adjustments of ETH issuance per block, first from 5 to 3, and then from 3 to 2.
These improvements were appropriate and necessary. Ether had become exceedingly valuable and security providers were being significantly overcompensated. Yet, the improvements were also incremental. In hindsight, these adjustments will likely be considered basic ‘maintenance adjustments’, while the heavy lifting was being done by the Ethereum researchers.
ETH Protocol Upgrades
ETH is money, and thanks to Ethereum our money is software. Ether is getting two major software upgrades to what it can be as money.
Proof of Stake: ETH issuance is minimized, while access to ETH issuance is maximally democratic. Notably, PoS also formally transitions ETH into an income-generating capital asset.
EIP1559: ETH becomes increasingly scarce as a function of the magnitude of the Ethereum economy. As the Ethereum economy becomes ‘hot’, more ETH is burnt. As the Ethereum economy cools off, less ETH is burnt.
We all know these upgrades; all of Ethereum has been chanting this chant for years now. The cool part about Ethereum is that these are just the protocol upgrades to ETH the asset.
Protocol upgrades to Ethereum are likely going to reduce in frequency and magnitude over time. As more of the globe’s economy comes to depend on Ethereum, Ethereum (and therefore ETH) should commensurately become more ossified. Once large structures are built on Ethereum, the foundation must stabilize.
But ETH doesn’t only get upgrades from the protocol.
Every improvement to DeFi is an upgrade to ETH
DeFi is known to heavily innovate and iterate. Standing still in DeFi is falling behind… rapidly. Last week, I wrote ETH: The World's Most Capital Efficient Asset, which illustrated DeFi’s march towards improving the utility of ETH which illustrates the improvements that DeFi has made over the last 3 years, and how that has upgraded the utility of ETH every step of the way.
The main collateral asset in DeFi is ETH, and it’s truly the only asset that DeFi apps can capture value in, while still being 'Decentralized’ Finance.
This makes growth in DeFi a fundamental driver of the increasing value of ETH. When DeFi is bigger, ETH is more useful.
At a glance this seems like an obvious statement, but it’s worth understanding it from a software perspective.
Every DeFi app that gets deployed to Ethereum is an economic upgrade to the powers that lay in ETH. When a new DeFi app gets built on Ethereum, it bestows new properties upon ETH that it didn’t have before.
ETH is getting a software upgrade.
Uniswap V3 was an ETH software upgrade for liquidity.
Aave V2 was an ETH software upgrade for collateral.
Tornado Cash was an ETH software upgrade for privacy.
You get the idea?
All of these things increase the optionality that ETH holders have, in how they chose to leverage the capital in their ETH.
Money is power. Money is optionality of the future. The more money you have, the more power and choices you can access.
DeFi is on a relentless march to bestow power and choice into ETH. ETH gets automatic over-the-air software updates, and it will continue to do so until Ethereum’s last block.
Ethereum has been around since 2015, but DeFi has only really been around for the last 3 years. Before then, we were tinkering around with stuff that wasn’t about money or finance. All of the current DeFi apps that enable ETH to have so much power have only come around in the last 3 years.
We’ve only recently discovered what DeFi really is, and what it’s good for. I can only imagine how cool and powerful some of the future DeFi apps will be!
And all of this is before ETH becomes Ultra Sound Money at the protocol level.
As far as investments go, I feel extremely comfy holding an asset that is at the intersection of money and software. I wouldn’t dare sit on the sides as humanity grapples with the magnitude of the collusion of two of the most powerful forces we have ever created.
Crab Season is your friend. 🦀
Accumulate future optionality!
Scan this section and dig into anything interesting
Market numbers 📊
ETH drops -9% to $2,033 from $2,230 last Monday
BTC cools down by -3% to $32,800 from $34,000 last Monday
TVL stagnates +0% to $55B from $54.9B last Monday
DPI dips -3% to $300 from $308 last Monday
DAI stability fee on ETH holds 3.50%
Market opportunities 🤑
Alpha Leaks & Yield Farming 🌾
What’s new 🗞️, what’s hot 🔥, & money reads 📚
What I’m Doing & What You’re Doing
Extra Credit Learning
Some recent tweets…
ETH is leaving the inflationary era on August 4th. Get ready.
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Listen to Building a $500M DeFi Fund | Arthur_0x
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Aave is a decentralised, open source and non-custodial liquidity protocol enabling users to earn interest on deposits and borrow assets. Aave Protocol is unique in that it tokenizes deposits as aTokens, which accrue interest in real time. It also pioneered Flash Loans and Credit Delegation as innovative DeFi building blocks. The Aave Protocol V2 makes the DeFi experience more seamless with features that allow you to swap your assets for the best yields on the market, and more. Check it out here.
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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