What is Decentralized Finance (DeFi)? Why is this important?

There is a lot of hype, noise, skepticism, confusion and excitement surrounding decentralized finance (also known as “DeFi”). The blockchain-based ecosystem of products and services uses open access, autonomous and transparent software. It replaces the traditional financial middle class. .

Although DeFi is still in its infancy (a few years), the size and impact of the impact on the industry has been enormous. Ethereum is DeFi's main infrastructure. About $ 1.5 trillion in business was settled in the last quarter, or the equivalent of 50% of Visa payments. Decentralized money markets generate billions of dollars in loans every month. It uses the proprietary and collaborative protocol of the Uniswap platform, etc., and the market volume is around 30% of Coinbase.

Entrepreneurs, business leaders, policy makers and organizations large and small appreciate this model. So here we describe the features and benefits of DeFi, in order to identify future challenges and consider ways of growth and adoption.

But what makes this possible?

What is DeFi and where does it come from?

DeFi has been a major force in blockchain innovation for the past ten years. Each wave started to be very skeptical and slowly accepted and accepted.

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The first term was defined as Bitcoin (created in 2009),It provides us with a data distribution device or blockchain that aims to facilitate the exchange of non-digital assets.The second wave is translated by Ethereum, which borrows the same basis of counteraggression. But unlike Bitcoin, the Ethereum-based programming language (Solidity) can be used to build any application you want. The third wave is the ICO boom of 2017, which has helped fund many projects, some of which have already started to deliver on their community funding pledges.

DeFi is Wave Four and follows the mix of these updates.

With DeFi, anyone in the world can borrow, borrow, trade, or trade blockchain-based tools using an easy-to-pull wallet, without the need for a bank or brokerage. If you want, you can research more financial instruments like leveraged market, commodities, assets, insurance policies, regulators, etc. while still managing your assets.

The DeFi process adheres to core standards, and in particular it is unauthorized and transparently reflects the value of Ethereum, an open source decentralized software platform that builds the infrastructure for most decentralized text applications.

“No License” is for end users and developers.DeFi apps can work for anyone in the internet connected world, regardless of race, gender, age, wealth, or political affiliation. In addition, all groups of developers can build trust on these platforms, knowing that there is no clear basis for eliminating future access.

"Transparency" refers to the unique research of the DeFi platform.Since software is always source or open source, all principles are still available for review and all investments are publicly available and available for review. Businesses are closed to the blockchain, making it easy for development companies to analyze specific industries or research information for investment (or research) purposes.

What are the characteristics and advantages of DeFi?

The two main features of DeFi (unauthorized and transparent) can be translated into a variety of efforts.

It minimizes the impact on entry, reduces transaction costs and provides options.

Unauthorized use of Ethereum-based applications (capable of "cutting" (or copying and modifying) code bases for free and transparently) reduces the impact on enterprise access to zero. End users are the main beneficiaries of this new space. Transferring capital between platforms is easy because each application shares the same database (Ethereum blockchain). This makes the campaign ruthlessly competitive in terms of cost and user experience.

A striking example is the rise of the “Exchange Aggregator” application. Using public APIs, these aggregators access multiple resource zones, distribute commands across platforms, and provide end users with the best possible results. In just a few short months, the author was quick to embark on a journey to best practices for DeFi, a collaborative model in the early days of the electrical industry that needed legal attention.

Contrast DeFi is a competitive market with today's consumer market, where opening and closing an account can take three days. Or compare DeFi to brokerage. Climate change on different platforms can take up to 6 working days and involve multiple calls. Along with other complaints, it is a "price change" that makes consumers reluctant to move their business elsewhere, even if the service is not good. In fact, the downside for consumer markets is that finances always improve in divergence. Since 1990, banking licenses have declined at a rate of 3.6% per year, restricting consumer choice.

Transparent accounting, strict control

DeFi's budgetary auditability allows for strict inspection and risk management.For financial markets and lenders, which are platforms like buyout that allows users to access trade dates, loan agreements with friends, users can check the quality of their credentials or check the leverage of the system at: a given time.

This contrasts with the opacity of the current budget. It was only after the global financial crisis of 2007-2008 that analysts and regulators began to understand that the US loan-to-deposit ratio had risen to 3.5 ... double that of Russia, the second-largest banking system. no longer in debt.

A collaborative effort to solve the owner-agent problem

Without a doubt, programmable escrow accounts (often referred to as “smart contracts”) allow DeFi protocol design to be at the protocol level.

For example, in the MakerDAO system (a bad credit system), holding MKR tokens earns interest on the loan. However, in the case of business or industry, they are important advocates. MKR was printed and sold in the market to compensate.This comprehensive plan establishes a strict liability policy that requires MKR holders to establish the necessary product portfolio and the risk of breach of contract.Risk management without other means of exposing MKR holders to risk.

Compared to the traditional financial system, if management makes a mistake, direct members suffer. The recent closure of the Archegos is a recent example. Many Credit Suisse executives have left the bank, but they do not take personal responsibility for the loss.However, DeFi's accountability will lead to better risk management.

Source : www.block-chain.info

Modern infrastructure improves market efficiency and robustness

Ideally, capital should be seamlessly connected as data ages on the internet. Specifically, payments should be immediate, exchange rates should be minimal, and services should be available 24/7, 365 days a year. Our global finances only operate from 9 a.m. to 5 a.m. and are non-profit, except weekends and holidays.

Clearly can request payment today. We have also recently seen the kind of business turmoil that can arise when there is no immediate hearing. Due to the difficulty in complying with investment rules, Robinhood had to temporarily postpone orders for GameStop, a T2 payment product (in the standard business model, the market typically takes two days to resolve issues).

A profitable business also needs good real estate development.The decentralized nature of the blockchain makes it very resilient. In the six years since Ethereum's launch, the network (and the applications that extend it) have experienced 100% uptime. This is not the case with centralized analogues. No matter how centralized, established and / or governed they are, intermediary organizations (stock exchanges or payment combinations) can appear unreliable, especially in times of crisis.

The impact on consumers is real. Take the example of the average user who logs in later and sees their balance drop.

Global access, consolidated markets

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A specialized global company can make larger investments and lower trading costs for all trading participants.

Today, exchanges may offer better prices for certain assets than mid-sized exchanges or service providers. In the stock market, instruments like the US Federal Reserve (ADR) act as a bridge between currencies and often suffer from large and unprofitable costs.

There are many financial policies that can still be adopted when the business can be implemented globally.Currently, developed countries often exclude financial services due to the high cost of setting up local businesses relative to demand and lack of infrastructure. However, unreliable financial services (zero cost online services) can work for unscrupulous people by providing services like insurance, international payments, savings and credit denominated in dollars.

information from the time

A tool used to create financial services on a transparent and shared basis if all relevant data exchanges are reported to the public in real time. For example, in Uniswap contracts, the revenues of financial service providers can be tracked on a second basis. Traders can use this information to determine how to allocate capital, provide the best return on investment and allocate resources, and administrators can monitor the exchange of information to identify users of abuse.

This is very different from a capital investment process.In the traditional business enterprise, investors were stuck in the dark until the company reported its quarterly results.The situation in the private sector is even worse, when companies decide to publish metrics, they prefer to create their own metrics. It's hard to imagine investors making a profitable decision when they want to use old data. Regulators still struggle with current systems and often wait years to find faults, correcting them too late. Capital and Wirecard are two recent studies.

Eliminate third party / credit risk and reduce compliance costs

By definition, DeFi platforms are “autonomous”. Users never entrust their assets to the average person. Some people may be scared at first, howeverDeFi self-regulation helps eliminate partnerships and the risk of credit risk associated with financial transactions, bad credit, or financial party dysfunction.Analysts estimate that the value of cryptocurrencies falling through the exchange rate on average since 2011 has exceeded US $ 7 billion due to strikes or because workers deliberately steal their money from users. . DeFi is a variation that replaces “do no harm” with “cannot harm”.

Self-discipline also benefits employees as it avoids unnecessary liability and compliance costs.For example, the FinCen cryptocurrency process requires companies to require users to have a foreign exchange license, which is often a risky process, but companies do not mind their personal affairs.

The adoption challenge is important

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As with the latest technologies and changes, DeFi is facing some issues. It's not much different from the stars on the Internet, when connections are slow and hardware is expensive. Even the most sophisticated people have found it difficult to promote the concept of a photo or video. Now photos and videos have turned into money. online social activities.

Measure

DeFi's bottom-up recovery process, Ethereum, will continue to measure to support higher bandwidth.Ethereum processes around 1.5 million unrelated transactions in a single day, which has now reached its maximum potential and the exchange rate has risen sharply.

However, the measurement method cannot be achieved at the expense of safety and distribution. After years of research and development, many solutions are coming soon that are supposed to ease the burden of Ethereum while maintaining its critical value. Capacity building can always be a slow process, and new features will support demand over time. (It has nothing to do with internet improvements either). )

Better train judo

For the average user, the DeFi onboarding experience is too much of a burden. The process of migrating fiat currencies (US dollars, euros, pounds, etc.) to the cryptocurrency market is still in the throes of friction, the launch of fiat currencies is still limited to certain regions and the prices of processors. are not competitive.

Storing and managing wallets will be difficult even after the switch from fiat currencies to crypto assets. To interact directly with the Ethereum network, you need to install a special wallet. In general, users should protect sensitive passwords, private keys, and passwords without the "Forgot your password?" »Backup. You do not have the right to request an error.

But there are reasons to be optimistic. Diversification is the best practice in storage and portfolio. For example, the Silver “Smart Wallet” bypasses whole-seed terms and provides users with restricted daily spending, with a poor “relationship” returning in the event of misplaced equipment. At the same time, we hope that fiat online trading will become more competitive and therefore improve costs, coverage and trading times.

The rules are clear

As technology impacts new industries, world leaders have many responsibilities. In the financial sector alone, regulators today are dealing with new and diverse funding, from lenders to investors.

Blockchain technology is an area that has been ignored or ignored for years by the mainstream financial community, let alone regulators. Currently, these administrators review technology, industry, and stakeholders to determine appropriate policies. Their goal is to ensure that users and law enforcement agencies have adequate consent (if not transparency), against fraud (abandoning the previous assumption that the entire function of a blockchain is fraud) and against Corruption. the author.

However, over the years, many lawmakers and regulators have announced cryptocurrency regulations that will wipe out all profits from cryptocurrencies in the past, even if it is beneficial to them for consumers. Instead, they focus on the downsides, such as Bitcoin financial fraud, high-risk Ethereum investments, and early sales, often oblivious to the positive impact.

As a result, there are some management issues, including the roles of various actors and technologists, who have a poor understanding of DeFi and free up responsibilities and burdens for software developers who are unaffected by outside of the business. current policy. These recommendations are like trying to hold the developer of the SMTP account responsible for all spam, or the HTTP creator of any illegal site.

Decentralized embezzlement

Just as “private blockchains” are the product of a search engine that integrates waves using existing blockchains,Central financial companies can join forces to use DeFi mobility and make significant gains in the process.Although they are similar to other smart blockchains like Ethereum, some of these chains are essential, allowing users to pay quickly and cheaply, while providing authorization, to install medium and unauthorized cores. Accepted modification of the DeFi tariff agreement. While there are always "weak" data technologies that will come with strong data technologies, as Chris Dixon believes, this is a business error, and not the weak data of the above mentioned technology. above. .

Some financial companies usually include corporations, technology companies, and even national companies.They don't want to adopt or join DeFi, they want to create a version that isn't fake or too powerful.While the latter product may offer additional benefits, it falls short of the potential that this technology can offer: unauthorized global access to global revenues and completely eliminating the risk of competitors.

DeFi is here and will continue to be.Some skeptics believe this is the best idea that has ever been created to be included in the shadow of the internet. However, innovations in payment, risk management and accessibility have allowed DeFi to become an integral part of the financial industry, not only in cryptocurrencies, but also in interaction in all types. industries. In the future, people will use the DeFi contract to sell tickets, Apple stocks, pork belly gifts, socks, and more. There may be portals giving access to these processes and there may be independent and commercial management.

As some hardliners have said (since the internet hasn't killed the entire printing industry), that doesn't mean the end of the traditional financial services industry. However, for traditional financial services and other businessesDeFi time is about getting income and assets directly from illegal contracts, while freeing them up to focus on key benefits like asset monitoring. , the first brokerage firm, based on fiat money and the consumer.

Early skeptics once said that no one would use or value Bitcoin, but over the past year Bitcoin has grown into a million dollar asset equivalent to gold and the balances of some of the companies in the industry. . Likewise, protesters believe Ethereum is not working, too slow, and too expensive. Today, Ethereum supports thousands of unauthorized applications, resolves multi-million dollar transactions, works for legitimate financial firms, and has a significant impact on cryptocurrency research. Additionally, despite the failure of the ICO boom, many token sales have helped fund key technological developments, including storage (the sanctity of long-term accounting), joint ventures, data breaches, and the number of shares.

The most important are:Each wave of cryptocurrency has attracted tens of thousands of engineers and entrepreneurs, and this is how DeFi's future was created.