Chapter 5:

Permissionless Systems

An overview of dApplications and their networks.

Chapter 4

Self Custody: Part 2

Chapter 6


26 May 2022
May 2022

Today’s Agenda

We’re covering lots of surface area here. Each of the topics listed below is entire sub-industries within crypto. While there’s a growing number of people who devote every day and every dollar to DeFi, NFTs, and DAOs, the segment of the population who is even aware of how to use them is still quite small. As global adoption metrics, security practices, and education improve, that number will increase.


Other than on crypto exchanges, Blockchain applications (sometimes referred to as dApplications or dApps – decentralized applications), are where most of the activity in crypto occurs. dApps are built directly on top of a blockchain and will utilize its settlement layer to perform their functions. They can be anything from a messaging service to a trading platform and on-chain activity refers to transactions that take place across various dApplications on various blockchains. An on-chain transaction doesn’t always involve a transfer of value or funds, transactions can also relay messages, cast votes and serve other non-financial purposes.

There are thousands of dApps built across dozens of blockchains and most of their utility and function can be categorized into the DeFi, NFT, or DAO industries. Some dApps help users earn yields of billions of dollars while others are built purely to serve as infrastructure such as bridges between different blockchains. New types of dApps like Lens, an on-chain social network, and Rabbit Hole, an on-chain credentialing service, are taking off in popularity and it will be interesting to see how burgeoning sub-industries like the digital fashion and decentralized science movements evolve. They’re similar to regular websites but they’re using blockchains, a totally different framework than the regular internet so their capabilities differ.

For the purpose of this course, you just need to understand the following:

DeFi: Decentralized Finance

NFTs: Non-Fungible Tokens

Some Bored looking Apes

The Fallacy of Right Click & Saving

People love to ask NFT owners the following, “If I right-clicked and saved a screenshot of an NFT, wouldn’t that be the same thing as owning it?” That question is baseless given the nature of owning digital assets on a blockchain so it’s best practice not to ask it.

These apes are not being compared to the Mona Lisa but from both a financial and philosophical perspective – owning a copy of the Mona Lisa is not the same as owning the Mona Lisa. The above question becomes especially hackneyed when you consider the fact that NFTs can represent real-world assets.

Propy, for example, lets you tokenize the deed to your house and sell it on a blockchain as an NFT. No 30-day closing period is required.

DAOs: Decentralized Autonomous Organizations

Blockchain applications that fit into these three categories include even more sub-categories than what’s been listed but for the scope of the next chapter, we’re focusing on DeFi applications – in particular, DEXes (Decentralized Exchanges). DEXes are an aspect of the DeFi world that enables, here’s this word again, permission-less transactions of digital assets. The way they do so is relatively complex so we’ll deal with that in another course.

For now, let’s discuss why this concept of permission-lessness keeps coming up.


The idea of asking for permission to make a transaction sounds a bit odd but in effect, it is what 99.9% of the world is doing. The other 0.1% is taking part in DeFi or a barter network.

In a barter network, you’re acting within a P2P (Peer to Peer) framework with no central intermediary. If I have 10 chickens but want 1 cow and you have 1 cow but want 10 chickens and we both value 10 chickens per 1 cow, I can just trade my chicken to you for your cow and we’ll both be happy. DeFi enables this same P2P framework but in the context of digital assets.

Let’s take the aforementioned DEX example. DEXes enable the permission-less transaction of digital assets through the implementation of liquidity pools. Liquidity pools are effective services governed by on-chain software that facilitate the transfers of liquidity, or on-hand capital, that traders can use to make trades.

There is no company and no CEO involved with any transaction on a DEX so there is no company or CEO who can stop any transaction. These liquidity pools don’t just close at 4 PM ET like the New York Stock Exchange does, they are 24/7 mechanisms that exist as long as the blockchain they are on exists. They are a series of processes, otherwise known as a protocol and many can exist without human input or monitoring. 

When compared to a CEX (centralized exchange), DEXes are revolutionary. Rather than deal with 5-10 various TradFi intermediaries to handle your funds and trade lifecycles for you, you can do it all on your own. These 5-10 intermediaries cause many issues that ultimately make finance as a whole less transparent, less democratic, and more counterparty-dependent.

Blockchains aim to get rid of this dependence by serving as immutable sources of record on which other applications, like DEXes, can base their activity. The DEX doesn’t have to worry about who’s in the custody of your assets because only you can be unless you lose your mnemonic/recovery phrase.

Regulatory Uncertainty and Counterparty Risk

In TradFi, your location may completely restrict you from accessing certain services, like crypto derivatives in the USA. US crypto traders are not given nearly the same amount of opportunity as non-US crypto traders and the reasons behind that are fairly nuanced. Long story short, US agencies like the SEC are not clear with their opinions on crypto and exchanges don’t want to get in trouble in the future so they generally don’t offer derivatives or as many token listings in the US as they do internationally. 

This regulatory framework is ultimately hurting US investors as they are left with a small selection of tokens to choose from and disingenuous public market instruments like an ETF of futures contracts following BTC’s price. The regulatory uncertainty also has an impact on the country’s economy as a whole, as developers and other human resources are gravitating towards and generating economic value in regions with favorable regulations. This concept, known as jurisdictional arbitrage, is a growing trend in this digital age. It’s an example of a second-order effect of slow and backward policies.

If your location doesn’t seem like an issue in your investing activities, you still have a lot to deal with. The grossly misrepresented and excessive counterparty risk in traditional finance became obvious throughout the 2008 financial crisis. Of course, there were many factors at play but there’s no doubt that the contagion of collateralized debt obligations, worth around $2 trillion, set the recession in motion. This debt, secured against thousands of low-quality residential mortgages that ultimately defaulted, generated enormous counter-party risk that the system was unable to handle when the music stopped.

In other words, there were massive checks but no balances.

Reserve Currencies & Unprecedented Territory

The global monetary system is fickle. Evidence of that is new global reserve currencies come about every few centuries. Billionaire investor and Bitcoin advocate, Ray Dahlio – among others, theorizes that the current reserve status of the USD is declining and that other currency will rise in global prominence.

While compelling, this theory stands in contention with other geopolitical commentators such as Peter Zeihan who refers to falling populations and supply chain issues halting the advancements of many emerging markets over the next century. Peter argues that the global macroeconomic environment has moved into an unprecedented territory and that the previous framework won’t accommodate what’s going to happen. Also compelling.


Who’s to say the next global reserve currency isn’t going to be a decentralized one? 

Digital Renaissance

What’s happening in crypto is being described as a digital renaissance. People and companies now have the ability to take custody of their financial affairs in ways never before imagined. NFTs and DAOs are related to DeFi but are their own breeding grounds for different forms of innovation and creativity that are disrupting incumbent industries like art, real estate, e-commerce, gaming, governance, and investments. The web is evolving.

To avoid this long read from being too long a read, many details on how DeFi, NFT and DAO applications operate have been left out but will be included in the following chapters.

We have a new extension