Here is a tentative list of topics. The schedule is fluid in that I may spend longer on some topics and spillover to the next class. I might add or delete topics. I will also be interested in your input for topics. The last class will be a very long class, to get through the presentations. Select Saturdays at 12:30pm, Location, Geneen.
[Note: Preassignment Due January 14 (11:59pm).] Course requirements. Why me? Introduction to #DeFi and the role of technology.
The class starts with a discussion about cryptonetworks based on the Paradigm White Paper. We then begin DeFi Infrastructure by exploring the origins of DeFi and take a broad historical view from the earliest barter economies to present day. Indeed, barter was the first example of peer-to-peer exchange. We also look at historical examples of money having value even though it is not officially backed. We then focus on the key infrastructure components: blockchain, cryptocurrency, smart contracts, oracles, stablecoins and decentralized applications (or dApps). This includes discussion of the mechanics of the Ethereum and Bitcoin blockchains including cryptographic hashing. Next, we focus on the specific problems that DeFi is designed to solve: inefficiency (costly, slow, and insecure today), limited access (1.7 billion are unbanked), opacity (we need to trust regulators to monitor banks and the regulators have mixed records), centralized control (financial system is oligopolistic imposing higher fees than we would have in a competitive market) and lack of interoperability (it is difficult to move funds from one financial institution to another today). DeFi Infrastructure closes by exploring many of the myths about the crypto space.
DeFi Primitives begins by describing transaction mechanics and we introduce both fungible and non-fungible tokens – or NFTs. We explore the important issue of custody (holding private keys). We then explore supply adjustment which includes the minting and burning of tokens. The mechanics of bonding curves are introduced. We then look at the role of direct as well as indirect incentives in the DeFi system. We analyze swaps or decentralized exchange. We begin by contrasting DEX with centralized exchange (e.g., Coinbase or Binance). This part details the mechanics of Automated Market Makers and provides a number of detailed examples. There is a discussion of impermanent loss as well as (legal) front-running. We end the DeFi Primitives by exploring both collateralized and flash loans.
Intro the quantum computing and quantum-resistant signatures.
DeFi Deep Dive focuses on some of the leading protocols in the DeFi space. We will look at Credit and Lending (and feature MakerDAO, Compound and Aave), Decentralized Exchange with an analysis of how protocols like Uniswap and Balancer works, Derivatives (featuring Yield Protocol, dYdX and Synthetix) and Tokenization with an analysis of Set Protocol as well as wrapped bitcoin. For many of these leading protocols, we include detailed examples of how the mechanics work. For example, we show how to use a dYdX flash swap to execute an arbitrage transaction (take advantage of different prices on different exchanges for the same asset).
Continued investigation into leading protocols
DeFi Risks and Opportunities starts with the premise that a careful analysis of any new technology must clearly gauge the risks and challenges. Given that DeFi is only a few years old there are plenty of risks. The class begins with the most obvious risk: smart contract risk. Smart contracts are foundational for DeFi. The code of these contracts is public - opening a clear attack vector for hackers. That is, in traditional finance, hackers need to break into a system to get access to the code and data. In DeFi, everything is open source.There are many other risks studied including: Governance risk; Oracle risk; Scaling risk; Decentralized Exchange or DEX risk; Custodial risk; Environmental risk; and Regulatory risk.
Each group will have 14 minutes to present an analysis of a relatively new company.
Given the course is only 8 sessions, there are a number of supplementary materials that I will make available to you.