DeFi liquidity, barter evolved

Historically the earliest transactions occurred using the process of barter. Each party assesses the value of their assets, and based on a consensus an exchange rate is achieved. 10 eggs for 10 firewood logs is a simple example of a barter transaction. Clearly the valuation of each component of the transaction is subjective, and the process of consensus is complicated due to each party bringing their own sentiment to the traction. This is where slippage comes into the picture. The same transaction on the other side of town may be 5 eggs for 10 firewood logs. This essentially means the party whom traded 10 eggs for the logs didn't achieve the optimal exchange rate. The slippage of the 5 egg transaction was not optimal, and a loss was incurred. This lead to the creation of marketplaces, a concentration of traders where arbitrage can occur, and minimization of slippage could be achieved. The inevitable failure of this process was that it could not scale.

DeFi Liquidity providers, combined with aggregators, are the evolution of barter marketplaces. The software being produced is the solution to scaling barter transactions; bigger better global barter marketplaces. Aggregators like 1inch.exchange reference many liquidity providers and automatically identify an optimal exchange. This is called the process of pathfinding, which achieves the best transaction with minimal slippage. The pathfinding software is historically unprecedented, and could never be achieved effectively at scale by any manual means. For the first time in history barter transactions can occur at a worldwide scale, involving unlimited participants, and software automatically executes the optimal exchange.

The intention of this short article is to describe the historic process of barter, express that DeFi liquidity tech is wonderfully analogous, and likely disruptive in yet to be imagined ways. It's suggested not to glance over this aspect of the DeFi space, and to expend due diligence to understand the nuances of each individual platform. There's great software being built, with utility, and scalability in mind. There's substance to what's unfolding, with historic comparison, and unknown disruptive potential.