#50 Trading Relative Value
A paper clip and DeFi
A Paper Clip
No thing, and no person has any economic value in a vacuum. Instead, everything and every person has a relative value. Value (and thus price) is in fact the relationship of one thing to another. To illustrate the relative value nature of the way we derive price, a Canadian decided to put this to the test in 2006. He began with a red paper clip. Starting with a red paper clip he engaged in the following trades:
1 paperclip for a fish-shaped pen.
1 pen for a hand-sculpted doorknob
1 doorknob for a Coleman camp stove (with fuel).
1 camp stove for a Honda generator.
And a bunch of other stuff a long the way until things get a little weird.
A Snow Globe
On or about April 26, 2006, he traded the year's rent in Phoenix for one afternoon with Alice Cooper.
On or about May 26, 2006, he traded the afternoon with Cooper for a KISS motorized snow globe.
On or about June 2, 2006, he traded the snow globe to Corbin Bernsen for a role in the film Donna on Demand.
On or about July 5, 2006, he traded the movie role for a two-story farmhouse in Kipling, Saskatchewan.
Personally, a generator has more relative value to me than a KISS snow globe. But, as they say, that’s what makes a market.
This may have been the first public articulation of what we now call DeFi. He traded “up” based on use case and did not establish a fiat value between trades. Value, or price, now in DeFi is established based on use case—what the token associated with the protocol allows you to do.
Here’s the thing though. The guy took a paperclip, and he exited the trade in via house ownership. It stops there. He withdrew his money.
Our theory of the case at Foot Guns, and why we are so bullish on DeFi is that there is no house. Once fiat enters the system no matter what the avenue, it doesn’t leave. No one says, ok, I got a house, I’m out. Rather people just exchange the original fiat for different tokens. When we’ve asked podcast guests at what point they would just, you know, get out—withdraw the value of the tokens into USD, they either didn’t have an answer or it was something crazy like Bitcoin at $1MM. Well, there are people who think Bitcoin 1MM isn’t crazy, but that’s beside the point.
If, once the money is inserted into a closed system it stays in the system, then that makes us perma-bulls. At least until such time we see or hear of large amounts of people saying, that was fun, I’m out.
A lot of people emphasize we’re just at the beginning of DeFi, just at the beginning of the metaverse. No one seems to have much to say when we reach the end, or what the end looks like, or if there’s ever an end. Yet all things do end. And the end isn’t usually a house its more ruinous. Except maybe this time it really is different because the system is being run in plain sight and anyone can participate in the form of transnational democracy based, DAOs.