A remarkable and underappreciated consequence of the emergence of decentralized finance or DeFi is the way it is helping clarify the difference between a world where consumers control their own data and one where that data is locked up in a centralized service or platform. A number of months ago, Joel demonstrated this to me by using Zerion’s application to take out a loan on Maker and then repaying that loan through another application interface.
On the surface, this may not seem much different than using any digital bank to take out a loan or buy or sell a security, but as someone who first used digital media inside the walled garden of AOL, I understood immediately this difference was profound. In the early days of the consumer Internet, most people accessed digital media through an Internet Service Provider like AOL or Compuserve. They provided limited access to the Internet but favored their own content. So these intermediaries controlled how a content provider reached an audience and what a reader consumed. As the Internet developed and broadband became the norm, consumers paid for access separately from content - they brought their own access - and suddenly any publisher could reach any audience and vice versa. This led to the explosion of choices that came to define the Internet.
Over time, this vibrant open marketplace of ideas consolidated around a small number of platforms. In a world of infinite choice, navigation and curation became critical to any individual trying to manage the tsunami of options. Sorting through all that required personalization, which in turn required lots of data about individual behavior and preferences. Just as the content was locked up in walled gardens in the early days of the Internet, data was locked up inside the new walled gardens, Google, Apple, Facebook, and Amazon. This has led to a consolidation of market power, fewer consumer choices, and less innovation.
So when I first saw the demo of Zerion, I understood immediately that in DeFi, the interface and the data are separated. It is easy to underestimate how profound this distinction is. DeFi today is still immature, the protocols are limited, the performance underwhelming, the user experience (especially if interacting directly with the underlying protocols) is too difficult for most users. In short, it feels very much like the early days of the Internet, when accessing services directly on the Internet was limited, slow, and confusing to most users. It was much easier to use a service like AOL that bundled content and communications together. But then Web standards matured, and new interfaces (browsers) simplified and standardized user experience - content and usage exploded.
The separation of the interface from the underlying services and the ability of a user to freely access the data they create as they interact with the underlying blockchains means that users can compose solutions from multiple services. This again may not seem like that big a deal, but composability is shaping the DeFi market in a way we have not seen before. On the web where data is locked up inside the dominant platforms, services are bundled into comprehensive personalized offerings. If they want personalized services, users are unable to purchase them a la carte. They are forced to accept the bundle. This means there is no competitive pressure on the individual elements of a service, and the elements are predictably uneven at best. When a user is able to choose services from different providers, each element is continuously refined in a competitive marketplace. Instead of doing lots of things at a mediocre level, services tend to do one thing well. This unbundling is increasing the quality and the variety of the underlying financial services a user can choose from. It also makes the interface to those services critically important. With choice comes complexity. Zerion simplifies and standardizes the user experience, making the full power of the underlying DeFi protocols accessible to users.
We believe simple interfaces to open protocols will unlock enormous value in decentralized finance. So we are thrilled to announce our investment in Zerion.
We have had the pleasure of working with this remarkable team for almost a year. It does not surprise us that it takes a team that literally grew up in the world of blockchains and smart contracts, to execute so successfully against this vision. Even so, we are impressed with how much this team has been able to do with limited resources. We look forward to working with Evgeny, Vadim, and Alexey, as they bring the power of decentralized finance to a broader audience.