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#1 08-07-2020 07:35:17

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 2855
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DeFI (Decentralised Finance): what impact will it have on finance?

DeFi (Decentralised Finance): what impact will it have on traditional finance?


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The world of traditional finance is about to change. Long before the virus situation,  banks were struggling to improve efficiency and reduce costs. Most central banks also studied the role of blockchain cryptocurrencies. The loopholes of traditional finance are beginning to widen and the system of multiple inefficient intermediaries will be forced to evolve. Decentralised Finance (DeFi) will have enormous implications for the traditional financial system and the way we manage our wealth in the future.

What is decentralised finance?

DeFi (decentralised finance), as opposed to centralised finance, encompasses anything that provides loans, borrowings, bets, or some sort of reward to the user for bringing capital into the system. Unlike traditional banks, it eliminates all the intermediaries that would normally be involved through the use of intelligent contracts. It also removes all the high costs associated with this old system - and these benefits are passed on to the end user.

Decentralised finance remains heavily dependent on the Ethereum block chain (which has had difficulties in adapting to mass users). However, once Ethereum moves to ETH 2.0 using the Proof of Stake consensus mechanism, the number of users it can embark on will be potentially unlimited. The next wave of crypto-money adoption will really start. In addition, other serious competitors, such as Compound and Maker DAO, will propel DeFi to a growing number of users.

In today's DeFi landscape, users can earn between 7 and 10% interest on their crypto. Finally, just like the generations of rich people who preceded them, they can make their money work for them and not the other way around (read the Rich Dad, Poor Dad book to understand this concept fully!). This is an extremely attractive option, especially in the current context of negative interest rates and uncontrolled quantitative easing. Keeping your pounds, euros and dollars in a bank account will cause you to lose money over time.

DeFi may still be young and its massive adoption requires further growth. The industry took a major step forward in February by surpassing $1 billion in capitalised value, although compared to traditional finance it is only a drop in the ocean. Yet it is already beginning to rebuild and replicate the entire global financial system using decentralised applications that fit together like puzzle pieces. The benefits of DeFi for users are plentiful and traditional banks will have to adapt to them, adopt them or be left in the dust.

The conditions exist for decentralised finance

With the virus situation reaching a dramatic scale, the issue of money supply and creation is beginning to take on greater importance. Millions of people around the world, deprived of their jobs or looking at closed factories and offices, are beginning to ask important questions.

How can governments suddenly print billions of dollars from nothing when they have to pay taxes? Why have they endured years of austerity and cutbacks leaving their health systems vulnerable? Is their money worthless?

Those who are able to think beyond their next benefit check could start to investigate this a little further. Why, for example, is this money going to support the stock market and the top 1% of companies rather than the millions of people and businesses that really need it? People will soon begin to realise that inflating the money supply means that they are actually being taxed while their savings are being diluted.

And with traditional finance, those who need credit right now are also those most likely to be deprived of it. The banks can be bailed out, but this money will not be used to provide credit to people. Worse still, they can close branches or limit the amount of money clients can withdraw.

All this growing dissatisfaction with traditional banks, coupled with new information and increasing offers of cryptos, finally provides investors with an alternative. They no longer have to participate in a system that does not work for them. The cycle can be broken by removing the central players. And this takes the form of decentralised finance with consumer-to-consumer loans, high-interest accounts and stakes for returns.

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"Anything worth having is worth going for - all the way." - J.R. Ewing

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