(Un)Stable building blocks: the unfortunate paradox of decentralized finance

Hooke, 2023-09-21

Defi as Building Blocks and Public Goods

Decentralized finance, open finance, on/chain finance, whatever you want to call it, comes in many forms. Some have trusted third parties and some don't, depending on the use cases. Some have governance and some don't. But whatever your view of defi is, the overwhelming majority of users believe it to involve a variable number of primitives built as protocols are combined to make newer applications on top. DEX aggregators, yield vaults, and borrowing markets all are a combination of protocols to meet a certain goal. Actually, because these networks are often seen as public goods, they are designed to meet collective goals as well. Any collective action should have certain tenets such as a mutualistic goal, rewarding the good and punishing the bad, and last but not least; stability.

Stability and Instability

Stability in a system is what keeps people from jumping ship and causing a cascade resulting in failure. Historically, we have had times of stability and instability. Modern times have modern issues, one such being hyperinflation. We see countless examples across the world of governments hyperinflating the money to becoming worthless and this sets off a chain reaction of events nothing short of catastrophic. This happens because governments have central authority over printing, they benefit from it, and it has no opportunity cost to produce meaning there's nothing stopping them to produce insane amounts of money without expending anything to create it. This is the ultimate power in modern times and countless people seek to wield it for both good and bad intentions. Bitcoin's proof of work was a step in the right direction, it added hardness to the money like gold, so producing it can't be costless, permissioned and or centralized. This feature of gold has helped it stand the test of time as a hedge against fiat. The lesson here is simple: people don't want their money stolen. So how do we learn from these lessons and create a stable economic base? The answer is Ergon.

Elastic Base Money

Ergon is a permissionless stable e-cash, and the spiritual successor of Bitcoin, to fulfill Satoshi Nakamoto's dream of a peer to peer electronic cash. Ergon does this with very minimal change, simply by adjusting the block reward from flat to proportional. This allows the currency to stabilize as a medium of exchange. Ergon is elastic like the US dollar but costly like gold or bitcoin. Because anyone can mine, they can get proportional value in Ergons. This makes generating supply costly, permission-less and elastic. Nobody has the ability to produce supply arbitrarily. Minting Ergon always requires an equal cost. Therefore, the benefits of gold and bitcoin are not deflation, but rather costliness to produce. Ergon thus synthesized a new money that takes the costliness of bitcoin and gold and the flexibility of fiat to create a new gold standard in economics and monetary theory. We believe Ergon can be the cornerstone to a new age of money.

Defi Stabilization

But why stop there? As mentioned at the beginning, a stable "base" is critical to decentralized finance or any economy for that matter. Which gives us the ultimate paradox of crypto: defi is built on a hyper deflationary base. We are building a stable future of finance on an unstable foundation and nobody seems to care. The effects of extreme deflation will continue stunt the growth of the economy through perpetual boom and bust cycles that send us into catastrophic spirals. For example, most collateral for defi loans are in deflationary assets, meaning when shit hits the fan, shit really hits the fan in the firm of liquidation, because the value you collateralized your loan with is spiraling out of control. How long can defi ignore the base paradox? Will humanity continue the boom and bust cycle or will it wake up to the powers of a stable base money?


Ergon’s synthesis of electronic cash can unify a conflicted and contentious world of economics. Denationalization of money is once again an achievable goal for cypherpunks. With Ergon we can unite the two wings of economics and end supply-based boom and busts. It would be a great base layer for uninhibited economic growth and more efficient cycles. Who knows what other possibilities will come of this? Is the world ready for an elastic Bitcoin? We will just have to wait and see.

Ergonians Unite!