After the Time Skip: A Reassessment of the DeFi Landscape Entering 2025
As mentioned in the previous post, I’ve finally started publicly posting again after a couple years of radio silence. Novatero strategies have been getting tested and tweaked over that period, but there’s still plenty of catching up to do regarding the blog, such as where the specific ideas mentioned in previous posts and general direction of the industry have gone in the intervening years. This post is the first of at least a few that will attempt to play catch-up and get us back on the same page on various subjects in the year 2025.
One of the silver linings to working on huge data sets across a series of computers that are either too old and/or too underpowered with RAM is that you have a lot of time in between executing code snippets to read. On my brain-foggiest days, this will typically lead me to the junk food equivalent of “reading”: socials, gossip rags, and inane listicles. Sometimes it means I can make a dent in my ever-growing stack of literature (both fiction and non-fiction, the current livre du jour being the dense-but-entrancing Moon Witch, Spider King). Even rarer still, it gives me an opportunity to catch up on the current investment landscape. Since we’re currently looking at running a code snippet on a dataframe of…about 425 million observations, it would seem that there’s more than enough time on-hand to address the latter.
In an effort to fully commit to the revitalization of Novatero’s public-facing output, I have been setting aside this time recently to review old posts and follow up on some of the concepts located therein. The first concept was one of the recurring motifs in the four-part “Fixing Retail Investing” series (I, II, III, IV): the advent of Decentralized Finance, or DeFi. Specifically, I looked toward the DeFi space at some of the novel products being developed that looked to further democratize the investment world. The three I specifically called out were Ampleforth (AMPL), synthetic volatility indexes via DeFi Volatility/UMA, and uSTONKs via YAM Finance/UMA.
AMPL was the most-curious case, mostly because it a stablecoin with the most-grounded concept: maintaining wealth and purchasing power in an inflationary environment. The TL;DR was that there are two main levers for wealth in a currency: supply and price. Most fiat currency, due to its historical nature as a physical asset, was elastic (prices are stable) but dilutive (creating more currency drives down the worth of a unit of currency). Most cryptoassets, like stocks, are the opposite: quantity is non-dilutive and held constant or increased to a finite point in a way that is predictable, but the price of a unit varies wildly. AMPL sought to correct this by keeping the holder’s wealth constant: if the price of AMPL goes from $1.00 to $1.50 due to demand, the price of AMPL is lowered back down to its $1.00 tether, but the user gets 50% more units to preserve their wealth. AMPL was also tethered to the Consumer Price Index (CPI), the United States’ index that is generally the determinant of inflation. It was a clever way to get even closer to the source of inflation that US Treasury Inflation-Protected Securities with even more liquidity (i.e. ability to trade the asset on the market).
So, after the past couple of years and some very real impacts from inflation on the global stage, surely AMPL has taken off into the stratosphere and is leading the way toward the bright new DeFi future?
Ehhhhh…
Ampleforth’s blog hasn’t had a post since April of 2024. I know, I know, pot, kettle, black, etc. But many of the most-recent posts there have dipped into splitting AMPL into two additional assets (SPOT and stAMPL) that are collateralized into tranches based on the age of the assets and then it gets complicated. When you’re confusing a financial engineer with your financial system before even diving into the documentation, you’ve either got an unintuitive system or you need to go the Star Trek route and explain the complicated technobabble with a simple analogy. Also, the mere mention of tranches should set off anyone’s alarm bells regarding the Mortgage-Backed Securities house of cards that led to the 2008 Financial Crisis. Also also, the current fundraising push on Twitter* looks pretty gimmicky. Granted, that is the way the game is played in the crypto space, but it doesn’t mean it’s not using the opium of the masses for ostensibly a good idea.
And that’s the thing, there’s still some there there. The final post so far goes into the three pocket concept: one for investing for the future, one for immediate, liquid needs (bills, food, rent, etc.), and one for wealth preservation (AMPL, TIPS, inflation hedging), which is a fantastic idea and is mostly how I run my own personal investments. I have no doubt that the big picture idea is to get to a low-volatility preservation of wealth, but there’s a gap between the idea, the technology, and the space that it’s attempt to leverage to bridge that.
This carries over to the other two concepts as well: DeFi Volatility (whom I wrote a guest piece for in 2021) has pretty much stopped updating since 2022. Their pursuit of synthetic volatility indexes seems to be more-or-less dead. The same seems to be true for uSTONKS: UMA has moved on to prediction markets and left synthetic indexes behind as well.
All three seem to be moth-like in their movements: genuinely interested in an idea, do some groundwork to show a proof of concept, and then move on to pursue another idea that has more acclaim in the field. Hell, look at how many Crypto proselytizers moved into becoming AI true believers when it became the new hotness. I can’t really blame them: “go to where the money is and capitalize on it” is kind of the whole ethos of Capitalism. But what happens when what’s best for the customer is at odds with what’s best for the creator? Well, the creator will bend the will of the system to meet their needs while trying to hold on to as many customers (or, at this point, users) as possible. It becomes a cross-purpose, and as we’ve seen time and time and time again, when it comes down to people versus power, the latter will odds-on end up on top.
So, what can we make of this? Well, it means that if we want to have:
An investing environment that eschews flash-in-the-pan fads for true, buy-and-hold wealth creation
Novel strategies and technology that preserve wealth
A true investment community that invests in themselves and also in the community
it is going to take both tried-and-true ideas as well as collective ownership of them by the community itself.
We can get there. Together. Stay tuned.
* Going forward, I will not be using Twitter/X links in blog posts