How can we discover what defi is good for?

Originally a post at Cryptoeconomics.

The blockchain world is currently obsessed with defi. In the past few months, billions in digital value have been staked, swapped and farmed in radical experiments using liquidity pools, automatic market makers and decentralised exchanges.

Defi is easily belittled as a collection of scam-riddled projects powered by magic internet money. Perhaps. But more optimistically defi is a spectacle of entrepreneurial discovery.

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Blockchain and the Evolution of Institutional Technologies: Implications for Innovation Policy

Published in Research Policy (with Chris Berg, Brendan Markey-Towler, Mikayla Novak and Jason Potts)

Abstract: For the past century economists have proposed a suite of theories relating to industrial dynamics, technological change and innovation. There has been an implication in these models that the institutional environment is stable. However, a new class of institutional technologies — most notably blockchain technology — lower the cost of institutional entrepreneurship along these margins, propelling a process of institutional evolution. This presents a new type of innovation process, applicable to the formation and development of institutions for economic governance and coordination. This paper develops a replicator dynamic model of institutional innovation and proposes some implications of this innovation for innovation policy. Given the influence of public policies on transaction costs and associated institutional choices, it is indicated that policy settings conductive to the adoption and use of blockchain technology would elicit entrepreneurial experiments in institutional forms harnessing new coordinative possibilities in economic exchange. Conceptualisation of blockchain-related public policy an innovation policy in its own right has significant implications for the operation and understanding of open innovation systems in a globalised context.