With the advent of seigniorage and modern “cash systems,” elastic supply tokens were initially met with equal parts excitement and bewilderment. It is polarizing to say the least. From amateur investors to the crypto cognoscenti, elasticized finance (“EFi”) tokens, with their contracting and expanding supplies have been hailed as the future of money by some, while characterized as a Ponzi scheme by others. In recent history, such divisive interpretations have been ascribed to none other than Bitcoin. As the esteemed cyber security expert and longtime crypto advocate, Andreas Antonopolous noted on the seminal cryptocurrency, “it is not what it appears to be at first glance.” And so it is with elastic tokens—they come replete with expansion and contraction, creative pegs and dubious price feeds that fail to accurately reflect gains or losses. In the summer of 2020, they found the spotlight and quickly recessed only to appear once more and fizzle again. Now, they are surreptitiously beginning to take root and quietly make their mark. For those willing to experiment with what has been dubbed, “an experiment,” it can be a mystery and a minefield to navigate.
With utility emerging, impressions still remain polarized but the evolution and intrigue are undeniable. Are we witnessing the creation of a smarter money, an uncensored universal autonomous currency, a truly stable trading pair that can remove impermanent loss, the tool that crypto derivatives have been missing with their algorithmic stability, the unbreakable digital currency or— is this merely another trend that will be left to wither and die on the vine? EFi on the whole is becoming more sophisticated and beginning to be “baked into” protocols. Their importance is increasing while their presence is becoming less perceptible. These are characteristics of true adoption; when users are unaware of the technology they are engaging with. To date, the framework of on-chain lending, borrowing and DeFi primitives on the whole seem to be slowly incorporating EFi’s chief characteristic and that is elasticity of supply.