DeFi addresses 5 disadvantages of traditional finance

To use Churchill's words, writing a book on financial management is like explaining uncertainty. First, people have to write down the details of the origins of modern decentralized finance, then the processes that provide the bones of blockchain technology, and then the DeFi infrastructure. All of these should be 191 pages long, including descriptions, benchmarks, and metrics. It's not something a tyrant can do.

Fortunately, Campbell Harvey, professor of finance at Duke University, author of "DeFi and the Future of Finance," Ashwin Ramachandran, director of Dragonfly Capital, and Joey Santoro, founder of Fei Lab, all do this. After reviewing “five shortcomings of traditional budgets” (low efficiency, low power, opacity, centralized management, and lack of collaboration), he told DeFi how to improve the situation.

Take as an example the problem of central management. The author notes that governments and large corporations have “real monopoly power” over income, inflation and “access to the best possible capital”. DeFi "reverses that centralized control" with an open protocol and immutable functions.

Like the way DeFi talks about financial uncertainty, there always has been. "Package c in DeFi is very realistic about third-party capital and allows you to see how the money is transferred to the appropriate area." It reduces the risk of others. As non-existent, "in business applications, major consumers can self-serve in the absence of a smart contract" (eg optional functionality option).

What to do about the lack of traditional funding in terms of access restrictions? The author writes that DeFi will give cashless people to the bank and other groups that cannot directly enter the world of financial services, using farming for example. In the DeFi process, users benefit by guessing their investment in managed tokens. This makes the users part of the owners of the platform. "It's an anomaly in the financial system that has always existed."

The authors also describe how DeFi processes can be superimposed (for example, a combination of DeFi, sometimes referred to as "DeFi Lego"), which solves the problem of insufficient interaction. Once the infrastructure is in place (such as building real estate), “each new contract that accepts loans can be used, and at a higher level, authorized according to lending capital.

In-depth research

Chapter 6 describes the eight main DeFi protocols. MakerDAO, Compound, Aave, Uniswap, Yield, dYdX, Synthetic and Set Protocol. Each section has a table of values, the first row describes the budget that always deals with a particular issue, and the second row describes how DeFi protocol describes that issue.

For example, in Table 6.3 “Issues Resolved by Aave”, the first row refers to “Centralized Control”. In the existing financial system, “the borrowing rate and the borrowing rate are controlled by the company”, while in the DeFi method, “Abe's interest is controlled by an algorithm”.

Existing funds only have "restricted access" under the old system. In other words, "only certain groups can receive large sums of money for a decision or reconsideration" (line 2, line 1). Aave's recommendation, meanwhile, specifies that "flash loans offer businesses the opportunity to immediately benefit from the benefits." .

The third row focuses on “poor performance”, especially in the traditional financial system, “bad credit rates due to inflation”, and Aave's solution (rows 3 and 2) are “integration and optimization with algorithmic interest ”is not seen.

new danger

The author carefully warns readers that "any new technology will introduce new risks." When it comes to DeFi, there are plenty of new risks out there, including smart contracts, management, oracles, scaling, DEX monitoring, environmental and risk management.

The authors wrote: "The software is vulnerable to malicious behavior from hackers and developers, and more recently the bZx and DForce hacks" see flaws in smart contracts. . "

Among these new threats, “Oracle Risks” stands out. DeFi contracts must include profitable and secure information to ensure operations are as efficient as completion and business decisions. “Basically the purpose of the oracle is to answer the simple question: how can we safely publish data off-chain? However, all online oracles are now“ easier to preempt per million ”and to use cash. By arbitrating traders, "they wrote.

“Before predictive capabilities proved the value, reliability and robustness of blockchain, they became the biggest threat to DeFi today. "

Improve the status of "incredible groups"

“These books are the principles of financial management,” co-author Harvey told Cointelegraph. The keyword book was written by Ethereum founder Vitalik Buterin, who told readers that "financial analysis is always a given." The issue of DeFi is important. , especially in developed countries.

However, the average reader may find this book a bit heavy on technology. For example, the shapes include super linear and logical / orthogonal curves, which may be beyond the imagination of some people. However, people who want to understand how electronic loans work may find it interesting. The glossary is broad and useful.

However, it will be useful to learn more about how DeFi started to change the world, such as providing banking services to non-bank users or insurance for uninsured people.

People may wonder what percentage of the “world population without banks” actually uses “agricultural production”. This is still a vague DeFi process, but the authors still view it as a DeFi offering, saying, "This is an example of a way to get financial aid, but in many cases abandonment. finance is still there.I don't think there is much like that.

Sadly, it seems that much of the DeFi world today is still focused on how to run a business or business rather than solving the poor world's problem. The book does not use multiple sites to fight DeFi in order to counter criticism from major industry media such as the Wall Street Journal, which pointed out in September that DeFi "makes casino investments for cryptocurrency groups. ".

It is not the writer's perspective on the future. Instead, they said on DeFi, “Spring for a Brilliant New City… Fundraising is open to everyone. Great ideas are to get funds from anyone, which translates into something. through greater savings and lower loan costs. Finally, we think DeFi is a big deal. most of the next ten years and look forward to more financial investments as we know them. Plastics. "

While unlikely to be achieved in the future, it is a laudable goal. Until then, this book will appeal to anyone looking to remove DeFi's internal functions.