I enjoyed the article and comments. There are a number of DeFi business models that aren’t easily comparable to the traditional finance institutional models, and I personally find those the most interesting.
Consider the Terra ecosystem, which has crashed but was the largest decentralized algorithmic stablecoin ecosystem to date. In theory, one USTerra is pegged to one USD. When demand for USTerra grows, its’ met as an equivalent number of Luna is burned. So Luna operates as a governance token, but also to back the peg. The peg was maintained at higher resolutions by arbitrage. The stablecoin ecosystem crashed but the model is replicated by dozens of other protocols and its’ too early to proclaim the death of the (undercollateralized) decentralized algorithmic stablecoin, IMHO. This is a novel application of DeFi tools that can’t be replicated by non-nation-state actors in a tradfi sense, the product of Terra was a better stablecoin. See also MakerDAO and Celo, both of which issue a collateralized stablecoin which is meant to be “backed” by natural capital assets.
Interestingly, Terra had a high-functioning auto-lending protocol, Anchor Protocol. Anchor allowed the user to bond Luna, collateralize their bLuna and borrow UST up to a portion of the total value of collateral. For extensive time periods, Anchor paid out negative interest as it was rewarding borrowers with allocation of governance tokens - this artificial subsidy is one means that PLF users justify the margin, and @tomideadeoye already mentioned case where post Eth as collateral, for stablecoins to inject into IRL business. Back in Terra Classic, Kujira built a highly efficient liquidation market called Orca. My experience was highly positive, the protocols functioned quickly, cheaply and as-advertised with uncertain long term sustainability. That is, until the stablecoin de-pegged…
Then we have blockchain networks that work, and provide energy, communication and/or computing services in a decentralized fashion, as infrastructure. Perhaps this isn’t pure DeFi, and I’d characterize these types of blockchains as decentralized infrastructure, or perhaps defi for infrastructure. Consider Helium which offers an incentive mechanism to grow its’ IOT mesh network, and 5G mobile telecom network. Imperfect but uniquely web3. Consider Akash, which offers cloud computing, or Render, graphical processors for rendering. These models, generally built on proof of stake governance, provide value beyond the maintenance of the network (proof of work like BitCoin). Arguably, Regen could be considered within this category, as enabling the formation of markets that aren’t achievable without utilizing blockchain, smart contracts and crypto.
@WaterLily poses an interesting question, that is which of the models described in the article, or elsewhere in the forum, are sustainable and economically secure given different regulatory regimes. There is certainly a great deal of risk related to regulatory compliance, and a great amount of uncertainty. I ascribe relatively high levels of risk to the experiential sovereign stablecoins, like Terra, as being a likely target of legislation and agencies. Lesser risk attaches to those blockchain networks that work, Helium or Akash – at least by securities regulators like the SEC, although they may be targeted by monopolistic industry.
Of the DeFi models described in the original post, the lender pool is likely to be regulated, in the US at least. And the auto-aggregators might or might not resemble a security, depending on the utility of the gov token and the courts, among other things.
As a final note, its’ worth noting that the value of a gov token is unlikely to correspond to the success of the protocol’s business model, unless paired with appropriate token economics. This was mentioned by @notthatintodefi. The ability to have a vote and receive staking and LP income may have some value, but the gov tokens are often disconnected partially or fully from the overall success of the business model. This was an attraction of Terra Classic, in that increased demand for the stablecoin product put significant depreciation pressure on Luna’s supply, and drove incredible value appreciation – again, until depegged and broke. Luna built value as demand for the stablecoin grew, and lost value when diminished, and had value beyond governance, to pay fees and provide liquidity (assuming success of its’ stablecoin).