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By Adam Knuckey, Co-Founder and COO of Dolomite<\/em><\/p>\n The world is held together with bandaids and scotch tape. Lift the bonnet on any time-served tech, and you\u2019ll find a seething mass of spliced cables and solder. We are on a giant ball of rock hurtling through space at 67,000 mph with our critical infrastructure maintained by a wing and a prayer. The same goes for crypto.<\/p>\n The tokens that whizz their way across blockchain networks are running on tech that has been patched so many times it\u2019s a miracle it still works. Or even more crucially, twisting systems to support use cases that weren\u2019t imagined when their software was first written.<\/p>\n Satoshi didn\u2019t mean for people to trade non-fungible tokens (NFTs)<\/a> on Bitcoin, and yet Ordinals found a way. Likewise, with DeFi, where the evolved understanding of programmable money has transformed the humble token into a sticky bomb capable of detonating in hard-to-reach places and triggering a chain reaction of second-order effects.<\/p>\n If you can envisage it \u2013 perpetual creator royalties, restaking, decentralized perpetual swaps \u2013 there\u2019s a way to implement it with tokens. But at times, the theory of what can be done runs into the reality of what\u2019s required to enforce this ability on-chain.<\/p>\n This problem is ultimately a matter of rights \u2013 native ones, to be precise. Without them, DeFi is a shadow of the transformative technology it has the potential to be. You can\u2019t shape the future of finance when you\u2019re running legacy software.<\/p>\n <\/a><\/p>\n The modern DeFi stack consists of an array of assets and protocols released over a multi-year period. DeFi is lauded for its composability, enabling different protocols and assets to work together, but what this concept overlooks is the sacrifices that are often made in order to fuse disparate, decentralized components.<\/p>\n Taking one project\u2019s token and making it stakeable in another\u2019s is simple. But if the act of doing so removes the token of the utility it was initially endowed with, such as voting rights, we\u2019ve lost something along the way.<\/p>\n Today, there are assets with built-in mechanisms that generate rewards in-kind or in the form of base assets such as ETH. There are assets that have vesting and staking capabilities, each tuned to the function of their ecosystem, enabling users to earn a share of the project\u2019s revenue. And beyond that exist even more advanced, project-specific mechanisms.<\/p>\n All of these functions constitute DeFi native rights that a holder of a project\u2019s token is entitled to. Holding a project\u2019s token means investing in a project, becoming a member of its community, and earning the right to utilize the token\u2019s inbuilt mechanisms, such as staking, earning rewards, and voting. The problem is that when these tokens are utilized throughout the broader DeFi ecosystem, they lose much of this functionality.<\/p>\n Without support for native rights \u2013 those core powers initially programmed into the token \u2013 DeFi\u2019s value proposition withers, even as it extends its reach through deeper cross-platform integrations. It\u2019s quite a paradox.<\/p>\n If only there were a way of locking productive assets into another protocol without losing their productivity\u2026<\/p>\n Of course, there\u2019s a solution to the native rights problem. This is DeFi, after all, where if we don\u2019t find the solution we\u2019re seeking, we code our own. That\u2019s the whole point of programmable money. Ensuring that native rights are maintained, regardless of where a token is being used, is not so much a technical challenge as it is a social one.<\/p>\n It requires coordination to ensure that token powers are maintained, something that third-party developers have empirically had little incentive to address when integrating non-native assets. \u201cNot my token, not my problem.\u201d<\/p>\n By allowing the gradual erosion of native rights through death by 1,000 integrations, we are chipping away at the very qualities that make decentralized finance so compelling. This is about more than retaining the ability to vote on protocol upgrades while earning yield in some other project\u2019s vault: it\u2019s about retaining the very identity around which DeFi centers.<\/p>\n Innovation doesn\u2019t just mean pushing your shiny new platform with its native token: it can also come from zooming out and looking at what can be done to enhance the existing assets that will be interfacing with your project. Legacy tokens, if you like. Protocols must adopt a model in which participation in one protocol doesn\u2019t come at the expense of the native rights of another.<\/p>\n Respecting native rights doesn\u2019t just preserve DeFi\u2019s existing capabilities: it gives communities a direct incentive to utilize yours in the knowledge that they will retain all of the upside to holding the underlying asset. Make it compatible, and they will come. Make it natively compatible, and they will stay.<\/p>\n Author bio<\/em><\/p>\n Adam Knuckey<\/a> is the Co-Founder and COO of Dolomite<\/a>, a lending protocol and DEX on Arbitrum. Adam got into crypto as a builder in 2013 and has been building DEX and DeFi applications full-time since 2018.<\/em><\/p>\nIt\u2019s a Native Thing<\/h2>\n
Houston, We Have a Solution<\/h2>\n
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