Why the RMIT Blockchain Innovation Hub is excited to be working with the Tracer DAO

By Chris Berg, Sinclair Davidson and Jason Potts

We’re thrilled to be working with Tracer DAO and its community in building out the vision detailed in the Tracer whitepapers that we co-authored with the Lion’s Mane team.

Flickr Creative Commons | Mirko Tobias Schäfer

We’ve proposed a new blockchain-based protocol for spinning up fundamental financial contracts that can be used to exchange, lend, borrow and engage in derivative agreements. One of the financial contracts that we’ve technically engineered, including economic infrastructure necessary for the operation of these markets, is Tracer’s Perpetual Swap.

At the RMIT Blockchain Innovation Hub we are followers of the famous Harvard economist Joseph Schumpeter, who coined the phrase ‘creative destruction’ as a way of understanding the costs and benefits of innovation.

Schumpeter wrote about industrial innovation, about the effect of new technologies such as steam power, electricity and railways on businesses, jobs, and markets. He observed that innovation is disruptive in the short run to an economy — often destroying existing jobs and business models — but that the long run effect is always massively beneficial due to the technical improvements and efficiency gains.

Importantly, Schumpeter noticed the democratising effects of innovation — how innovation empowered and improved the lives of everyone, not just societal elites. New technologies, that lower costs and increase scale of production or expand market size, bring new economic goods that might have previously only been enjoyed by the wealthy elite to the masses. This is why innovation is good. It enhances human flourishing.

But innovation, and the creative destruction it brings, is not just part of the industrial economy, but also increasingly part of the service economy, in particular the financial economy. Like Lion’s Mane we believe that innovation in the development of new types of financial markets is not only an entrepreneurial source of value, but that this also brings significant societal benefits by democratizing the tools and technologies of finance.

When we first met the Lion’s Mane team, they pointed us to Richard Sandor’s book, Good Derivatives. Sandor tells the story of how the development of derivative markets have added value to the lives of millions of people and the potential for these markets to solve social problems that continue to bedevil political elites.

We share a deep and abiding belief that financial innovation is worthwhile pursuing and developing not only for private benefit, but more importantly because of the net social benefits it brings. This occurs by enabling more and more people to access complex financial services and better meet their individual and personal preferences. We believe (apparently) complex financial tools and products should be available to everyone, not just a small financial elite.

A better, more efficient financial system is a better economy — an economy with more information, delivered where it is needed quicker. Tracer can provide incentives and tools to bring more information into the economy — information which can then be put to work by individuals and firms to more effectively manage risk.

In a previous piece with our colleagues we talked about how the DeFi sector was rebuilding financial infrastructure from the ground up. We expect this infrastructure to be a permanent feature of the financial system — new tools to move information and value around the world without the fear of censorship on Ethereum and other blockchains. The effect will not solely — or even predominantly — be felt in the developed world. It is where financial institutions are weakest or least developed that the benefits to individuals of DeFi will be greatest.

A decentralised financial system has much of the same products as a centralised one, but those products have to be built very differently, informed by different assumptions, limitations and opportunities. Identity is one of those assumptions. In traditional finance we can rely on fixed identities — with drivers’ licences and credit scores — to assess the risk of our trading counterparties. In decentralised finance we have to use hedging and insurance and cryptography.

Another key assumption is secure and reliable price feeds — a subcategory of what we in the blockchain space describe as oracles. In earlier eras of finance, oracles were few and tightly controlled, whether as trusted price feeds supplied by major exchanges or banks, or by governments.

But with frontier protocols like Tracer, we are entering a great democratisation of oracle-driven finance. Anyone can identify a source of data, can operationalise that data, and trade that data. In a world where there are many more sources of high quality data — many more oracles — there are many more opportunities for financial innovation. Tracer, as we see it, allows us to better tie the events of the real world to the digital world, allowing anybody to access the tools they need to hedge risk and take advantage of knowledge.

This is a potential benefit to many individuals who might reliably use or supply such feeds. But it is also a social benefit because others can then take advantage of these new economic resources to manage their own financial risks and opportunities.

Tracer DAO and its initiatives are an exciting part of the further development and democratization of finance. RMIT Blockchain Innovation Hub is proud to be the academic partner of the Tracer DAO. We are confident, in time, that this infrastructure will become part of the architecture of the digital economy destined to create a more inclusive economy that drives prosperity.

For more information about the RMIT Blockchain Innovation hub team see our work at https://rmitblockchain.io/

For more information about Tracer see the following links:

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