Decentralised Finance (DeFi): The Current State

London, the hub of traditional finance

This is the second of a multi-part series on decentralised finance (DeFi). DeFi is a blockchain use case that is potentially disruptive to the traditional finance industry. The first part of the series explains what it is and the philosophy behind the movement. A primer on blockchain (including examples of insurance use cases) is available in this paper I co-authored.

Financial super app

Becoming a super app of anything is the holy grail. Tencent’s WeChat is a prime example of a super app; users access multiple products and services within its walled garden of micro apps. Revolut, the fintech start-up disrupting the banking industry, has ambitions of becoming a super app of financial products; it currently offers a multitude of products including payment, investment, and insurance.

Decentralised finance (DeFi) promises financial inclusion by democratising access to financial products. With a freely available Web3 wallet, users have access to a slew of DeFi apps. The wallet is effectively a super app of financial products and services. These wallets are also non-custodial in nature, in that the user has full control and sole access of the wallet.

In its current form, DeFi has two distinct advantages over traditional fintech businesses:

  1. Censorship-resistant – It is harder (though not impossible) to ban the use of DeFi products. WeChat, in contrast, had been threatened with a ban in the United States by the Trump administration.
  2. Global in nature – DeFi products are available globally by default. Revolut, in contrast, is not fully multi-jurisdictional yet. Expanding to other countries is really hard.

The proposed Markets in Crypto-assets (MiCA) regulation in the European Union is likely to change the status quo as it requires providers of crypto-asset services to operate like a centralised legal entity. It remains to be seen if DeFi could exist in its current form, or what regulatory arbitrage, if any, would be available for DeFi to innovate unencumbered by regulatory constraints.

Ethereum dominates (for now)

DeFi products and services are digital and are fully automated. These products are built on permissionless blockchains that permit programmability via smart contracts. Ethereum is the first such smart contract platform. It has been described as a “world computer”, storing data and computing smart contract logic. Metaphorically-speaking, this world computer is fuelled by “gas” which is paid for using Ether, the native token of the Ethereum blockchain.

While there are a multitude of smart contract platforms, Ethereum is the dominant DeFi platform. It has attained the enviable network effect with a vibrant community of users and developers. More importantly, users and developers are locked-in as Ethereum does not interoperate seamlessly with other blockchains.

DeFi products and services

The explosion of DeFi projects in recent years is thanks to a number of foundational DeFi protocols, the building blocks on top of which other DeFi projects build their products on. These include:

1. Stablecoins

Cryptocurrencies like Bitcoin are notoriously volatile in price. In contrast, stablecoins are pegged to a target price (for example, 1:1 to the US Dollar). Stablecoins are the backbone of DeFi products, enabling payments, savings, and other services on decentralised networks.

Dai is the de-facto stablecoin on the Ethereum blockchain. Dai is “minted” when users enter into a borrowing arrangement by posting crypto-assets as collateral (i.e. Dai is a collateral-backed cryptocurrency). Its value is soft-pegged 1:1 to the US Dollar via 1) various levers designed to control the demand and supply of DAI, and 2) market participants seeking arbitrage opportunities, buying DAI when it drops below the target price and vice versa.

2. Decentralised money markets

“Money makes the world go round”. In truth, loans and credit drive the economy. The crypto-economy has been supercharged by the creation of decentralised money markets where crypto-assets are pooled and could be borrowed to be used in other DeFi services; for example, traders could borrow an asset to short sell on decentralised exchanges.

Aave and Compound are examples of decentralised money markets on the Ethereum blockchain. Credit provision in traditional finance relies in part on the borrowers’ character and reputation (encapsulated in credit scores/ratings). A digital identity infrastructure does not exist yet, hence loans in DeFi are collateral-based out of necessity. Lenders earn interest on the assets they supply to the asset pool; the interest rate is dynamically set based on demand using a pre-defined formula.

3. Decentralised exchanges

Centralised exchanges are arguably the weakest link of the crypto-economy with a history of high-profile hacks. Decentralised exchanges aim to solve the problem by allowing users to trade crypto-assets directly from their non-custodial wallet. Decentralised exchanges have evolved from the traditional “order book” approach (where orders are filled by pairing buyers and sellers) to the “automated market maker” (AMM) approach.

Curve and Uniswap are examples of AMMs on the Ethereum blockchain. AMMs work by fulfilling orders from a pool of assets provided by liquidity providers (who are incentivised by rewards in the form of trading fees and governance tokens). Asset prices are dynamically set using a pre-defined model that’s linked to order size and the quantity of assets available in the pool.

A number of innovative DeFi products and services have been built on top of these foundational DeFi protocols. A couple of interesting ones are:

  1. Yearn Finance – DeFi’s popularity in recent months can be ascribed to a trend known as “yield farming” – the process of seeking the highest yield on crypto-assets by lending in decentralised money markets and/or by providing liquidity to decentralised exchanges. Yearn Finance automates this process, acting effectively as a “robo-advisor”.
  2. PoolTogether – PoolTogether is modelled on the concept of “no-loss lotteries”. Users deposit fund in exchange for a chance at winning the lottery. The lottery prize is generated from the interest earned on users’ pooled fund supplied to decentralised money markets. Users could withdraw the full amount of their fund at any time.

Limitations and risks

Despite the growing interest in DeFi, it is far from mainstream adoption due to poor user experience. Current limitations include:

  1. Not user friendly – Interacting with a DeFi app is not a seamless experience for users. For starters, users need to exchange fiat currencies for cryptocurrencies. They then need to transfer those cryptocurrencies to a Web3 wallet, incurring transaction fees in the process (transaction fees or gas costs are paid to miners who maintain the Ethereum blockchain). Finally, to interact with a DeFi app, users need to send transactions to a smart contract, incurring more transaction fees. Some Web3 wallet providers have emerged to make using DeFi frictionless.
  2. Slow and expensive – The current version of the Ethereum blockchain has a low throughput (i.e. the number and speed of transactions). Completing a transaction could take minutes, depending on how much the user is willing to pay in terms of transaction fees. In recent months, transaction fees have been relatively high, making small transactions not worthwhile. Ethereum 2.0 will likely resolve some of these limitations.

Using DeFi apps also comes with a long list of risks; key ones include:

  1. Vulnerabilities in smart contracts – like any software, bugs in the code can be exploited, potentially allowing hackers to siphon funds locked in smart contracts.
  2. Attack on governance – Some DeFi projects are controlled by a community of governance token holders. The community votes on proposals pertaining to various aspects of the DeFi project. A malicious actor could gain sufficient voting power and act against the interest of users.
  3. Reliance on centralised oracles – DeFi products often rely on external data feed (i.e. off-chain data not created on the blockchain) such as crypto-asset prices from sources known as “oracles”. Some oracles are data silos operating in a centralised fashion, creating a single point of attack.

Reinventing the wheel?

DeFi products and services mirror those in traditional finance. The key differences are:

  1. There is no need for a trusted financial intermediary.
  2. The provision of financial products and services is fully automated.

Another innovation lies in how DeFi projects organise themselves. Some DeFi projects operate as a Decentralised Autonomous Organisation (DAO). DAOs eschew the traditional top-down hierarchical structure and favour a bottom-up approach to resource management and decision-making.

In the next part of this DeFi series, I will delve into the workings of a DAO and how it could change the way companies of the future are run.

The bottom-line: Foundational DeFi protocols such as stablecoins, decentralised money markets, and decentralised exchanges have enabled innovative DeFi products. However, DeFi is far from mainstream adoption due to a number of limitations and risks.

Disclaimer: DeFi projects mentioned in this post are the most notable examples to use to illustrate a point. Mentioning a project does not imply endorsement or recommendation. Investing in or using DeFi products could potentially result in severe financial losses (getting “rekt” in crypto parlance).

The Wisdom of Naval Ravikant


Naval Ravikant is a tech entrepreneur, angel investor, and a modern day philosopher. He’s not a household name; he once lamented that his fans are mainly young male geeks. That’s a shame because his wisdom is universal; transcending age, gender, and predilection.

I first came across Naval in an episode of the Joe Rogan podcast. I was spellbound by the way he articulated his thoughts on life, wealth, and happiness 🤯. Hungry for more, I subsequently consumed Naval’s many tweets, blogs, and podcasts.

How to get rich

Naval is most famous for his tweetstorm, How to Get Rich (without getting lucky). Don’t be fooled by the clickbait-like title; the tweets are timeless principles and mental models on wealth creation. He has since expounded on these succinct tweets in a podcast.

For my own notes, wealth creation can be achieved in three “easy” steps:

Arm yourself with specific knowledge, accountability, and leverage.

You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain your financial freedom.

You will get rich by giving society what it wants but does not yet know how to get. At scale.

Naval Ravikant

Naval’s principles are by no means a get-rich-quick guide. Far from it. He tempers unreasonable expectations by saying that wealth creation could take decades; most of that time may be spent figuring out what one can uniquely provide.

How to be happy

The end goal of wealth creation is freedom. We have a finite lifespan. An abundance of moolah allows us to control what we do with the only truly limited resource – time. Financial freedom, however, does not guarantee happiness.

The three big ones in life are wealth, health, and happiness. We pursue them in that order, but their importance is reverse.

Naval Ravikant

Naval’s views on happiness lean heavily toward Buddha’s teachings. For him, it’s about the absence of desire, and embracing the present moment. Happiness is attained when the mind stands still; not moving to the past to regret or to the future to plan.

Naval knows fully well that desires are necessary for advancement in life. We need to desire accomplishing something to self-actualise. The trick is to be very picky about what to desire. He advises cultivating one big desire at any given time and ignoring the rest.

Almanack of Naval Ravikant

Naval’s wisdom is scattered across the internet-verse in tweets, blogs, and podcasts. I would revisit them from time-to-time. This is now made much easier with the book, The Almanack of Naval Ravikant (freely available in pdf and Kindle format. A paperback could also be purchased). The book reproduces Naval’s words (mostly) verbatim, and organises them coherently around a topic.

In a homage to Naval’s reading habits, the book doesn’t need to be finished from beginning to end; you can jump to the topics that interest you and extract what you need. The book can be re-read repeatedly; over time, you may interpret the wisdom differently.

Naval’s principles are not new and some are instinctive. But they are well-articulated, and easy to digest and apply. Sometimes, that’s more than enough; a nudge in the right trajectory makes all the difference in life.

What if this life is the paradise we were promised, and we’re just squandering it?

Naval Ravikant

The bottom-line: Naval Ravikant’s timeless principles on wealth and happiness is life-enhancing. The Almanack of Naval Ravikant is an invaluable book (made freely available) which collects and organises the wisdom Naval has shared to date.

Decentralised Finance (DeFi): The Basics

The Maboneng Precinct, Johannesburg

My wife grew up in Johannesburg, South Africa. I’ve visited Joburg a number of times but have always kept mainly to the suburbs. The inner city was a notorious no-go zone. On our last trip in 2018, we visited the Maboneng Precinct, an area in the Central Business District (CBD) that has been rejuvenated and now exudes a hipster vibe.

At Maboneng, we came across a street vendor selling cute hand-stitched baby clothes. We could only buy one piece as we didn’t have enough cash on us (walking around the CBD with too much cash was ill-advised). The vendor couldn’t take card payments as she didn’t have a bank account. She mentioned something about not being able to open an account because she didn’t have a passport.

There she was in the flesh – the fabled “unbanked” frequently mentioned in the blockchain community. One of the promises of blockchain technology is that of financial inclusion – democratising access to financial services. That promise is gradually coming to fruition in the fast-growing space that is decentralised finance (DeFi).

I’ve spoken and written about DeFi at a high-level. This blog post is the first of a multi-part series that delves into the world of DeFi.

Defining decentralised finance

DeFi, in the broad sense, is an ecosystem of financial products and services built on decentralised permissionless blockchain. Let’s unpack that:

  • Ecosystem of financial products and services Products and services available today in traditional finance are available in DeFi, including payment, savings, borrowing/lending, trading, insurance and so on. These DeFi products are interconnected; for example, a savings product generates yield by supplying assets in lending markets; lending markets, in turn, rely on liquidity providers seeking yield.
  • Built on DeFi products are fully digital and are in the form of decentralised apps (dApps). These dApps are implemented using “smart contracts”, software code deployed on the blockchain that automatically executes an action when certain conditions are triggered (i.e. if x happens, then execute y action).
  • Decentralised All DeFi products are “architecturally” decentralised (i.e. distributed across a network of computers with no single point of failure). Some but not all DeFi products are “politically” decentralised (i.e. no single entity controls them), whereby the governance, management, and development of the products are grassroots-led, incentivised by tokenomics.
  • Permissionless There are two key aspects to being permissionless: 1) permissionless innovation – anyone with the know-how can build and deploy DeFi products; 2) permissionless access – anyone with an internet-connected device has access to DeFi products.
  • Blockchain Blockchain is a foundational infrastructure technology. At its most basic level, it’s a database shared by multiple participants. Data, after being verified by multiple entities instead of a single organisation, are propagated and stored by each participant. A primer on blockchain and how it works is available in this paper I co-authored.

The philosophy and raison d’être

Bitcoin, the first application of blockchain technology and arguably the first DeFi service, has streaks of libertarian ideals in its design. The core tenet of Bitcoin is financial self-custody in that users have complete control of their assets. Transactions between willing parties happen without the need for a trusted third party.

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Secret text in the Bitcoin blockchain genesis block

Satoshi Nakamoto created the genesis block of the Bitcoin blockchain on 3 January 2009. He/she/they included a secret text (the headline from the Times newspaper) in that very first block which initiated the crypto-economy. The embedded text is either 1) a mere coincidence or 2) a thinly-veiled criticism of a system that allowed large financial institutions to privatise the profits from taking outsized risks and to socialise the losses. No one knows for certain. Satoshi, whose real identity is still a mystery, isn’t available to clear things up.

DeFi inherits Bitcoin’s philosophy; the aim is to create a financial system that is open, transparent, and operates without the need for trusted central authorities. The promise is that of financial inclusion and economic freedom.

DeFi products available today enable the aforementioned unbanked street vendor at Maboneng to receive digital payments for her goods, access credit to expand her business, build up savings in a high-yield product, and ultimately have full control of her financial destiny. All without a bank account.

Defying traditional finance 🤷‍♂️

In February 2020, the amount of money in the DeFi ecosystem reached the US$1 billion milestone, as measured by the total value locked (TVL) in smart contracts. Since then, TVL has grown exponentially and reached a record high of US$11 billion in September 2020.

Despite the growing interest, DeFi remains at an experimental stage and is not ready for mainstream adoption. DeFi currently lives in a parallel financial world with limited interactions with the existing financial system. Traditional businesses are still reluctant to adopt cryptocurrencies and regulators are still figuring out how best to regulate crypto-assets (a legal framework in the European Union has just been recently proposed).

In short, it is unlikely to disrupt the traditional finance industry for the next few years.

What’s the end state?

It’s early days as to how the DeFi trend will play out. The pace of innovation in the DeFi space is rapid and is accelerated by two key characteristics:

  1. Permissionless innovation – Anyone, anywhere can build and deploy DeFi products;
  2. Open source – The software code underlying DeFi products is freely available for anyone to remix, reconfigure, and include in his/her own DeFi product.

Human creativity and ingenuity is such that many applications cannot possibly be predicted. Just think of when iPhones first came around; who would have known that one of the most popular apps would be one that lets you compulsively consume AI-curated short-form videos (yes, I’m referring to TikTok)?

In the next part of this DeFi series, I will write about the current state of the DeFi ecosystem, delving into the financial products and services currently available, and the limitations and risks of interacting with a dApp. Join me as I go further down the DeFi rabbit hole.

The bottom line: Decentralised finance (DeFi) is an ecosystem of financial products and services built on decentralised permission-less blockchain. It promises financial inclusion and economic freedom. The pace of innovation is rapid and no one can quite predict what the killer applications will be.

Satya Nadella: How Hitting Refresh Turned Microsoft Around

Source: Microsoft

When I’m not working, parenting or on TikTok, I read. In recent years, my reading material has veered towards biographies and memoirs. I’m fascinated by how great men/women ascend to the top of their chosen fields.

Satya Nadella’s memoir, Hit Refresh, is right up my alley. With his thoughtful leadership, there has been a renewed sense of vigour about Microsoft. When I think of Microsoft, I imagine a benevolent behemoth that’s nimble and ready to dominate the industry again (this time with kindness and empathy). Microsoft has learnt its ways; the evil monopolistic image is so 1990s and has long been eschewed. It’s no accident that Microsoft was excluded from the congressional antitrust hearing in July 2020.

A tale in three takes

Nadella’s memoir is in three parts:

  1. His journey from India to Microsoft;
  2. Microsoft’s transformation;
  3. The next wave of technological shifts, and his thoughts on the resulting economic and social impact.

A series of fortuitous life decisions brought Nadella to Microsoft in 1992 when the company was in its ascendancy. His own rise within Microsoft makes for an interesting read. The meat of the book, however, is in how Microsoft is being transformed under his leadership.

Transforming Microsoft

Before Nadella took leadership in early 2014, Microsoft’s share price languished below US$40. It has since increased by more than 5x. Investors have lucked out because Microsoft could have remained lacklustre without the shift in leadership, strategy, and culture.

Microsoft was a company on the wane. Sales of personal computers, the computing device Microsoft was dominant in, were declining. Mobile computing platforms like Apple’s iOS and Google’s Android were on the rise. Microsoft’s response was the Windows Phone, an ill-conceived product that was not sufficiently differentiated. Out of desperation to gain grounds in mobile, Microsoft bought Nokia in 2013. The resulting line of phones was a dud and the Nokia acquisition was eventually written-off. Microsoft was in trouble.

Bill Gates and Paul Allen started Microsoft in 1975 with, what was then, an audacious goal to democratise computing:

A computer on every desk and in every home.

Microsoft’s founding mission

Satya Nadella knew that Microsoft needed to hit refresh and return to its roots of democratising technology – making “powerful technology accessible to everyone and every organisation”. His strategy boils down to transforming Microsoft into a “mobile-first and cloud-first” company with the end goal of putting customers’ needs first. In practice, it means making products, that empower others, work across any device and any platform (even competitor’s). Notable examples include making Office work on iOS and Android, Minecraft on Facebook’s virtual reality headsets, and Azure on Linux.

Defining the strategy and vision for the company was the easy part. Like most large organisations, Microsoft was a confederation of fiefdoms. There were established processes and dogmas. Change was resisted. Nadella realised he had to do the following things very well from the outset:

  1. Communicate, clearly and regularly, a shared sense of mission, worldview, and business and innovation ambitions.
  2. Drive cultural change from top to bottom, and get the right team in the right place.

Leadership means making choices and then rallying the team around those choices.

Satya Nadella, Hit Refresh

Microsoft’s transformation is far from being complete. Satya Nadella is setting the stage for the company to dominate in the next wave of technological shifts.

The next wave

Microsoft is invested to lead in three key technologies:

  1. Artificial intelligence – advanced machine intelligence that enables contextual insights;
  2. Mixed reality – immersive environment that blends reality with a virtual one;
  3. Quantum computing – computers that can perform certain calculations exponentially faster than existing ones, which “will make artificial intelligence more intelligent and mixed reality an even more immersive experience”.

The vision is clear; Satya Nadella sees these as the next “run time” i.e. systems on top of which programmers will build and execute applications. This strategy is best encapsulated in the business parable from the California Gold Rush: it was far more lucrative selling shovels (and other tools and services) than it was mining gold. Microsoft is firmly in the tools and services business.

In the book, Satya Nadella also shares his thoughts on how these emerging technologies will bring about economic growth and social good. He is cautiously optimistic, aware, as he is, of the numerous challenges. For example, how do we tackle the short-term economic displacement that will result from automation enabled by technology? Disappointingly, he does not offer definitive answers but raises food for thoughts.

It’s not unreasonable to look to him for concrete solutions. After all, he’s successfully halted the decay (an inevitable plague of large organisations) at Microsoft, and has quietly made the company exciting again.

The bottom line: Hit refresh is an instructive read for leaders who are tasked to turn around a declining business. It also includes valuable lessons on effective leadership, and insights into the next wave of innovation and technological shifts.

Generation TikTok

Quantum physicist and author, Michio Kaku, writes about the Cave Man Principle in his book, Physics of the Future. He argues that modern humans, despite many advances, still think like our caveman ancestors. Whenever there is a conflict between modern technology and our innate preferences, technology loses out and is not fully adopted. Case in point: remote working (in the pre-pandemic world) did not take off because we prefer interacting with our fellow humans in the flesh.

Corollary to the Cave Man Principle… there will be a premium placed on gossip, social networking, and entertainment.

Michio Kaku, Physics of the Future

With an estimated 800 million monthly active users, TikTok has found the secret sauce that appeals to our primitive caveman brain.

The big idea 💡

For the uninitiated, TikTok is a short-form video platform. Think YouTube but shortened. TikTok videos are capped at 60 seconds – short enough to be digestible but long enough for creative flexibility.

It is not a new idea. Vine, the first such platform, was popular in early 2013. Twitter bought it and discontinued it 4 years later due to dwindling monetisation opportunity and increasing competition from Snapchat and Instagram.

TikTok itself is not new. Its parent company, ByteDance, has been operating a version called 抖音 (Douyin) in mainland China since 2016. The app was iterated upon and perfected before launching worldwide in 2018 following its merger with, a lip-syncing video app. As TikTok is engineered to appeal to our caveman desire, its popularity outside of mainland China should not be a surprise.

Unlike Snapchat, which is mainly the domain of digital native Gen Z, TikTok is intuitive and user-friendly, making it accessible to an older audience like myself. Having used TikTok casually for the past few weeks, it’s easy to see the appeal. Its popularity can be boiled down to:

  1. It’s super easy for users to discover compelling content;
  2. It’s fun for content creators.

The above creates a powerful network effect. New users are attracted to interesting content, which in turn draw in talented content creators who want access to a sizeable audience.

Optimised for you

TikTok videos range from the silly (e.g. lip-syncing, dance challenges, pranks etc.) to the informative (e.g. tutorials, short-form documentaries etc. #learnontiktok). The overriding theme is that you will find these videos engaging.

The keyword is “you” 👈. TikTok’s “For You” page (#FYP) is a continuous feed of videos which its recommendation engine has optimised based on an amalgamation of data you feed the app. The end result is a stream of highly digestible morsels of pure entertainment.

Netflix and Amazon Prime Video would benefit from TikTok’s secret algorithm; more time is spent looking for content than watching content on these video streaming platforms.

Cosying up to creators

A social media platform lives or dies by its pool of content creators. One of the reasons Vine failed was the exodus of creators to other platforms. TikTok attracts the best creators by:

  1. Making it fun – Hank Green (one of the earliest YouTubers and one of those rare breeds who has had a long-running career as a content creator on the internet) has said that as a creator, he’s found TikTok to be very fun.
  2. Providing the fund – TikTok has been courting creators by paying them to create content regularly.
  3. Making content discoverable – Unlike traditional social media platforms (e.g. Twitter, Instagram), TikTok creators do not need a large group of followers to reach an audience. TikTok’s recommendation engine ensures that good content gets seen.


TikTok’s main business model is advertising. With 800 million monthly active users, TikTok is prime real estate for brands. The very same recommendation algorithm that provides users with engaging videos is likely being used to serve up highly targeted ads. Advertisements on TikTok are seamlessly integrated into the video feed. Some are extremely well done and are entertaining in their own rights.

A potential growth area is live-streaming which is hugely popular in mainland China (Viya, a popular Chinese livestreamer, once sold a rocket launch) but has yet to fully take off in the rest of the world. Creators on TikTok with at least 1,000 followers can broadcast livestreams. TikTok sells an in-app currency called “Coins”, which users exchange real-world money for. These TikTok Coins are then used to buy virtual gifts to reward/tip livestreamers. TikTok has not disclosed the cut it takes from these virtual gifts but it’s safe to assume that this is a profitable side business.

Microsoft ⚭ TikTok

TikTok, like most apps, collects an inordinate amount of data on its users. Its parent company is based in Beijing where it could be subject to demands from the government to hand over data. On national security grounds (and in part geopolitical posturing), Donald Trump issued an executive order in August 2020 that would ban “any transactions” with TikTok’s parent company. Overnight, TikTok’s operations in the U.S. has become a distressed asset that needs to be sold.

Microsoft has emerged as a likely buyer. Buying TikTok would be an uncharacteristic move for Microsoft. The acquisition courts scrutiny and attention, which goes against the modus operandi of CEO Satya Nadella. It is a purchase that only ex-CEO Steve Ballmer, with his brashness, could fathom making. Social media is also a toxic business to be in, with a multitude of minefields (e.g. users’ data protection, content moderation, hate speech/harassment monitoring etc.).

With its increasing cash pile (more than US$100 billion), however, there is no better way for Microsoft to deploy capital than to acquire a fast-growing and exciting social media platform. If the deal does happen, Microsoft will have in its portfolio a new golden goose. If anyone understands the value of owning a platform, it is Microsoft (having dominated the industry in the past with Windows).

What’s next?

TikTok’s success has spawned countless imitators. Some of them are real contenders. Facebook, with its characteristic “let’s-steal/incorporate-all-good-ideas”, has launched a replica of TikTok on Instagram called Reels. Instagram, with its huge installed base, poses a serious threat to TikTok. Smaller competitors like Triller and Byte are also gaining traction.

TikTok, however, has achieved critical mass and a certain degree of brand affinity among users (for now at least). It has perfected the delivery of short-form videos with its uber personalised recommendation algorithm. It is like crack to our caveman brain.

Download the app and start scrolling through your “For You” page to see what I mean. I dare you.

The bottom line: TikTok is a compelling product. Its proprietary recommendation algorithm serves up irresistible and digestible morsels of pure entertainment.

The Tesla Thesis

I’m not a car guy. When I got the Tesla Model S (with the wife’s permission), it was out of my love for tech, and my genuine belief in the environmental ethos of zero-emission electric cars. The love affair started the moment Elon Musk unveiled the Model X. I fell for the car hook, line and sinker when Elon (yes, we’re on first name basis in a parallel simulated universe) promised autonomous driving capabilities.

The Model X was love at first sight. Alas, a car is a financial liability and the Model X, with the then base price of around £95,000, was the epitome of financial folly. So I settled for a modest Model S with a 75 kWh battery pack.

The product

Two years and eight months of union later, the Model S still gets my heart a-fluttering. It’s sleek, it’s cool, and its curves are wet dreams-inducing. To illustrate my point, here are some bokeh-licious photos I took of my sexy beast:

Like any relationship, there are ups and downs. This is my honest opinion of a specific model (a late 2017 Model S 75D). Production processes, hardware, and features have changed in the newer models. Without further ado, the good, the bad, and the ugly of the Tesla Model S for your perusal:

The good

  • Have I mentioned that this car is sexy and is the pinnacle of car design (a non-car-guy’s humble opinion)? Case in point: the door handle presents itself as you approach, and retracts to be one with the door as you drive away. I will say no more.
  • It’s sheer utter fun to drive. Instant torque sparks maximum joy. More importantly, each instantaneous acceleration does not spew noxious gas.
  • Fully charged, the 75 kWh battery pack provides a range of circa 210 miles, eliminating any range anxiety. On longer trips, the car plans the route to include stops at Tesla Superchargers. The very first road trip I made was from (just outside of) London to Scotland. I was impressed by the coverage of the supercharging network; there was even one in the Scottish Highlands! Even more astounding was that I paid zilch for “fuel” (supercharging is free-for-life for Model S and X bought before a certain date). At home, I charge using the Tesla wall connector, courtesy of Tesla as a referral reward. I set the car to charge in the wee hours to benefit from a special tariff of 5 pence (£0.05) per kWh (this works out to be less than 2 pence per mile). Better yet, my energy provider provides electricity from 100% renewable sources.
  • The semi-autonomous driving capability aka “Autopilot” is not perfect but works wonderfully on motorways. Autopilot keeps the car in lane, changes lane if the car in front is too slow, and exits the motorway automagically. It’s not fully autonomous as the driver’s confirmation is required to change lanes. Nevertheless, the assistance makes for a relaxing drive. On such drives, I listen to my favourite podcasts (Pivot, which inspires the rebirth of this blog, being the main one), and a vast universe of songs on the free Spotify account.
  • There is ample storage space in the trunk and in the frunk (front trunk) for road trips, or visits to the recycling centre.
  • The car is a piece of tech. I can program the car to open my remote-controlled house gate automatically when the car approaches the gate. I can control the car (unlock the car, open the trunk/frunk, open said gate, set temperature, set and monitor charging, summon etc.) via a mobile phone app.
  • Regular over-the-air (OTA) updates to the car’s software provides incremental improvements and/or new functionalities. Every OTA was like opening a present; less so today (see next section). These updates also come with Easter eggs, which most will find gratuitous (think farting noises with a click of a button which Tesla calls the “emission test mode”). These Easter eggs reflect Elon Musk’s inner geek and sense of humour. His love for the TV show Rick and Morty, for example, spawned an Easter egg which allows you to say “keep Summer safe” to engage sentry mode (a mode which protects the car from theft and other malicious intent). Voice commands in a Tesla are notoriously unreliable but “keep Summer safe” works every single time. Don’t look to Elon for guidance on how to set priorities in life.

The bad

  • The build quality is bad relative to cars from established automakers. I’ve had to visit the service centre to sort out minor annoying issues like rattling noises, misaligned wipers, and an inexplicable yellow border (fixed 1.5 years ago but the problem has resurfaced as you could just about see it in one of the photos above) on the otherwise unblemished and functional 17-inch touchscreen. Some basic components are known to have a short lifespan, making these a ticking time bomb for expensive out-of-warranty repairs.
  • Autopilot is not perfect. It is a massive leap from the current state to full autonomous driving despite Elon Musk’s various promises of the imminent arrival of full self-driving (FSD). Tesla has also been selling FSD as a premium add-on for years even though it’s still largely vapourware. I’m glad I paid for “Enhanced” Autopilot (which has largely been delivered) and drew the line at FSD. Confused by the gimmicky terminologies? This chart provides a good summary.
  • Over-the-air (OTA) updates to the car’s software does not fully benefit older cars. Recent updates such as video streaming (e.g. Netflix), new games or the ability to use my PlayStation 4 controller to play said games (#firstworldproblems) do not work on my car as it does not have the latest Media Control Unit (MCU). Like any tech products, an ageing hardware means inevitable obsolescence.

The ugly

  • The battery degrades and loses capacity over time. While I have not experienced any noticeable degradation, one direct impact of this natural wear-and-tear of batteries is that Tesla has throttled down the supercharging rate (normal charging at home is unaffected) for my car, allegedly to reduce battery degradation. When the car was brand new, the supercharging rate was 120 kW; the supercharging rate now averages 60 kW, doubling the charging time required. This is beyond annoying, especially on road trips. These issues are known as #batterygate and #chargegate among Tesla owners.

Despite the bad and the ugly, the Model S has been stellar. This is a car to be enjoyed and be grateful for. When the time comes to replace the car, I will most likely choose another Tesla. Battery degradation is inevitable but Tesla is expected to announce a 1 million mile battery on the “Battery Day” event tentatively scheduled for September 2020.

The company

The recent surge in Tesla stock price has put the spotlight on the company yet again. Tesla’s valuation, which reached an all-time-high market capitalisation of more than US$300 billion on 20 July 2020, is eye-watering considering its minuscule sales volume (compared to the established automakers). The high priest said so himself in May 2020 when the market cap was less than half of the all-time-high:

The valuation is in part buoyed by the broad asset price inflation caused by Central Banks’ stimulus programme. Market participants are also pricing in the company’s future potential. This potential is far from certain and it’s anyone’s guess what Tesla’s real value is, hence the volatility in the stock price. What exactly is the company’s potential?

Before I delve in, I stress that this is my personal view on Tesla and its potential. It is not an investment advice/recommendation. For full disclosure, I’m financially (I own Tesla shares) and emotionally (I’m a long-time fan) invested in Tesla’s success.

The mission and the master plan

Tesla has a lofty mission statement:

Tesla’s mission is to accelerate the world’s transition to sustainable energy.

The mission is being executed by revolutionising two economic activities enablers – transportation and energy, the erstwhile strongholds of the fossil fuel industry. The master plan is devilishly simple:

Build sports car

Use that money to build an affordable car

Use that money to build an even more affordable car

While doing above, also provide zero emission electric power generation options

Create stunning solar roofs with seamlessly integrated battery storage

Expand the electric vehicle product line to address all major segments

Develop a self-driving capability that is 10X safer than manual via massive fleet learning

Enable your car to make money for you when you aren’t using it

Elon Musk; The Secret Tesla Motors Master Plan, Master Plan Part Deux

The execution (so far)

Tesla’s range of cars which are in production (Model S, 3, X, Y) have made electric cars appealing. Not too long ago, electric vehicles are synonymous with golf carts. Now, they are aspirational products to yearn for and to attain. The affordable (and sexy) Model 3 and Model Y, in particular, are going to accelerate the adoption of electric cars. Tesla has forced the hands of the stodgy incumbent automakers; they too are transitioning away from internal combustion engines.

Some competitors have decent offerings; Volvo and Geely’s Polestar and the Honda E come to mind. The competition, however, is at a disadvantaged position. Tesla has had years to build its Tesla-only charging infrastructure. A Tesla owner could simply drive up to a Supercharger and plug in to start charging. In contrast, a non-Tesla owner has to contend with a disjointed array of charging stations operated by third parties, each with its own payment system and membership requirement.

Tesla’s slew of consumer energy solutions are elegant in form and function just like the cars. The solar roof (solar panels embedded into roof tiles) is beautiful and can withstand hailstones. The Powerwall, a battery pack which stores electricity, is so sleek that it’s a crime to hide one away in the garage.

Tesla has also been making in-roads into grid-scale battery packs. The most famous deployment is in South Australia, which started as a bet Elon Musk made on Twitter.

The product pipeline

Tesla has three more core products in the pipeline:

  1. The Cybertruck is a pick-up truck like no other. Within a week of its launch, 250,000 units had been pre-ordered despite the “failed” demo, and without any marketing expenses.
  2. The Tesla Semi promises significant cost savings to truck owners and operators through lower energy cost. A fully autonomous version will further reduce operational cost.
  3. The Tesla Roadster is a supercar with specifications that put the £2,750,000 Buggatti Chiron to shame. Enough said.

Tesla has also taken a leaf out of Apple’s book by offering services that are built on top of its core range of products:

  1. Subscription services – Tesla’s first subscription service is a £9.99 per month “Premium Connectivity” subscription. The recurring revenue business model makes sense and has revived the fortune of many a software companies.
  2. Insurance – Teslas are notoriously expensive to insure. I was quoted a ridiculous £4,000 for 1 year of coverage (some motor insurers deliberately price themselves out of insuring certain risks). Fundamentally, insurance is about utilising data to provide a competitive price (including profit margin), and to set aside sufficient reserves to pay out claims. There is no one better to provide insurance coverage for Teslas than Tesla itself. Elon Musk has called for “revolutionary actuaries” (see tweet below) to further develop the insurance proposition.
  3. Tesla robotaxis – When full self-driving is no longer vapourware, Tesla aims to launch an autonomous ride-hailing service in direct competition with the likes of Uber. The dream is that this will reduce the cost of ownership by allowing owners to put their cars to work at will.
  4. Electricity trading platform – Autobidder is Tesla’s best kept secret. This cloud-based software helps battery owners maximise their revenue. It’s a key step in Tesla’s foray into becoming a virtual utility. Watch this space.

The conclusion

Tesla’s business is super capital intensive. If free cash flow cannot be sustained, it will need to issue debt or sell more equity.

Its success relies on 1) scaling production as cheaply as possible, and 2) achieving full self-driving. These require engineering, technical, and regulatory breakthroughs that are not guaranteed. In short, it is a difficult business to be in, and a risky one to invest in, especially at an outsized valuation.

If anyone can make a success of it, it is Elon Musk (and his team). Do not bet against Elon Musk; he is highly motivated (he needs the moolah for his spacefaring ambitions), and he is more than capable of delivering Tesla’s potential. It is just a matter of when (likely to be later than promised).

The bottom line: Tesla makes innovative transportation and energy products that are beautiful and functional. More importantly, they wean us off fossil fuel.

Disclaimer: This is my personal view as a long-time Tesla fan. It is NOT investment advice/recommendation. I write on this blog in my personal capacity; my opinions are NOT endorsed by my employer or the actuarial profession.

Disclosure: I am financially and emotionally invested in Tesla’s success. I own shares in Tesla and I have a vested interest in an increased valuation.

Tesla referral link: If you regularly drive from A to B, please consider getting an electric car to stop polluting your neighbourhood. That electric car should ideally be a Tesla. Get 1,000 miles free Supercharging by using my referral link:

Octopus Energy referral link: Please consider switching to an energy supplier that provides electricity from 100% renewable sources. On the Octopus Go tariff, you could charge your electric cars (or do anything you fancy with cheap electricity) at 5p per kWh. Get £50 by using my referral link:

I Write Therefore I Am: The Purpose of This Blog

Restarting a blog in the age of TikTok is akin to driving a gas guzzler in the age of Tesla. I love Tesla and tech but unfortunately, I can articulate my thoughts better in words than in 60-second videos. Also, I can’t dance, let alone do a TikTok dance challenge. Long form complete thought is how I (rock and) roll.

I wrote regularly on this blog from early 2000s to early 2010s, chronicling my observations as a naive young adult navigating A Levels, university, and early years as a trainee actuary. Reading them now, the blog posts run the gamut of cringeworthy to unexpected foresights. 

Early on, the blog landed me a freelance writing gig for a newspaper (when these still thrived albeit on the wane). I was paid for each 300-words submission. That was a flywheel moment for me; it was a virtuous cycle of writing, getting paid, levelling up on writing, writing more, and stacking fiat money💰. Before long, I blew it all on a white hot 3rd generation iPod (I’m a sucker for tech).

I did dither over buying Apple shares instead of an iPod but access to the US stock market just wasn’t that easy (or cheap) for a 19 year old Malaysian. There wasn’t a Robinhood or a Revolut equivalent back then. Heck, I’m not entirely sure there is a commission-free trading app in that part of the world to this day (would-be entrepreneurs eyeing the Asia Pacific region, this is your cue).

I digress; back to the topic at hand – writing. Good writing informs and entertains. It spreads ideas. It turns the mundane into something significant. The pen, when wielded with malice, destroys. Clichéd as it is, the pen is mightier than the sword. This blog will be an avenue to pursue topics of my interest. I’ll do deep dives and then distill the essence of the topic. No hype, no hyperbole. The odds and ends of subject matters will be broad but focused mainly on tech and business.

My main motivation is to understand technological megatrends at a deeper level. I subscribe to the Feynman learning technique; the gist of which is that “the ultimate test of your knowledge is your capacity to convey it to another”. The underlying motivation is that knowledge can be leveraged into financial reward; I’m on a lookout for tech-orientated investments that are the proverbial “ten-bagger”.

I’m also motivated by this quote:

We try to use the talents we do have to express our deep feelings, to show our appreciation of all the contributions that came before us, and to add something to that flow. That’s what has driven me.

Steve Jobs

Join me as I attempt to add to the flow. The blog posts might or might not be insightful but a funny meme (somewhat relevant to the post) is always guaranteed. 

The bottom line: I write to understand subject matters at a deeper level, with the hope that this understanding/knowledge could be leveraged into financial reward.