We keep on looking at key attributes of DeFi, this time ‘open source’.
In our previous three posts, we started a new series and deep-dived into key characteristics of DeFi. The first one was the ‘non-custodial’ nature of DeFi followed by composability and accessibility. In this post, we will talk about the ‘open source’ nature of DeFi.
What is open-source?
Open source is a movement that started as a contrarian movement to tech giants of old times. In the very early days, technology was developed in universities through research granted by governments, and shared openly with others. The motto at that time was ‘stand on the shoulders of giants’, meaning take what others have already explored and found out and take it one to step further.
|Image by photosforyou from Pixabay|
When capital gets into tech through VCs, PEs and stock markets things changed course. Why? The capital provider invested in technology to get a return. This resulted in profit maximization pressure in these tech firms. The more profitable and larger they get investors asked for more. What did these tech giants do as a response? Return to their customers and squeezed every bit of penny out of them through license fees.
The open-source movement has stemmed from developers, most of whom work in those tech giants and see how to extract money from customers. They opposed the whole idea of a tech giant employing hundred engineers and spending x amount of on developing a software but selling it for a total of thousands or millions times.
These developers, loosely organized in forums on the internet, spend their weekends to actually create similar products and distribute them for free. One of the most well-known of such software was Open Office (which was later published as LibreOffice that is emerged as a solid Microsoft Office alternative. Perhaps a lesser-known but widely used open-source software is Linux, which is currently used in almost any network in the world.
How is it in traditional finance?
Institutions of the past claimed that they spent a significant amount of resources on research and development. As a result, in order to get a decent return, they tried to protect their investments with all the power they have.
What this brought is a world full of trademarks and copyrights. Whatever was produced, be it logos, systems, software were all kept in-house under closed doors and never shared with anyone from outside the organization.
What are the implications? How did this affect progress?
If you ask certain people (and I am one of them) trademarks and patents are real obstacles to progress. Why? First and foremost, it is a waste of resources. Really, how? Each and every organization faces same problems and issues, and each tries to overcome same problems by allocating their own resources. In the end, there is one (or two) solution to the problem and there are multiple redundant human time and capital is spent to solve the same problem.
How about in DeFi
One of the founding pillars of decentralized finance is open-source. All the major DeFi protocols make their software codes open to the public. Why do they do that? Just for altruistic reasons, i.e. with good intentions of sharing their know-how with others?
Not necessarily. DeFi protocols are merely software (as we stated many times in these columns). Even though there is a team behind writing the code, team members are not publicly visible nor can be held accountable for the code. So how would users trust them? Through reviewing and auditing the code.
One of the good things about software codes is, they do what they are told to do so. In order to make sure that the software will do what the users want them to do, we need to make sure that the code is written accordingly. Only through open-source code which is published on the internet (almost all on GitHub) auditors would review and confirm it works properly and that exact code is used in smart contracts.
None of the views expressed in this article should be considered as investment advice