The main one is scaling up to a much larger scale. In addition to the regulatory hurdle mentioned above, the industry also has to overcome technological barriers. What are the obstacles to large-scale adoption of “DeFi”? Most regulators believe that one should not give too easy access to finance because small holders could risk losing out if they lack full understanding this is what we sometimes see with hyper-simplified stock trading mobile apps like Robinhood. That being said, it is not without danger. This democratisation is the strong promise of DeFi. If these costs come down, it will stimulate competition and access to complex financial products that are today reserved for the richest. Hence, decentralised finance is accessible to the masses as opposed to the costs of entering traditional finance, which are very high (licensing, initial capital, lawyers). To take an extreme case, the initial version of Uniswap was only 300 lines of code. In decentralised finance, identities can be pseudonymised, but all operations are transparent. In market finance, we know the identity of the players (thanks to “know your customer” procedures for identifying customers), yet their operations sometimes remain opaque. It is important to understand that the classic market works in reverse to the crypto-currency market. Exchanges of regulated assets, such as stocks, are not possible for reasons of non-compliance with the legislative framework. Yes, only crypto-currencies can be traded. This success is partly driven by the explosion in capitalisation of crypto-currencies, which is still close to $2tn 2.īut isn’t decentralised finance only for crypto-currency holders? So, we can indeed talk about a take-off, especially for lending protocols (Compound, Aave), decentralised exchanges (Uniswap, Curve) and “stablecoins” (Maker). Does this mean decentralised finance is taking off?Ĭompared to traditional finance, it’s tiny, but these volumes are massive and continue to grow. It is an open book shared by all.Ī platform like Uniswap records an average of more than $1bn-worth of transactions per day 1. The blockchain is neutral, unalterable and allows to trace in all transparency all the steps of a contract. They replace banks for transactions and the legal arsenal (regulators, lawyers, courts) that was previously called upon in case of breach of contract. repaying a loan at regular intervals or committing to sell an asset at a given price). Exchanges are managed between private computers thanks to the blockchain, which makes it possible to generate contracts that are self-executing under certain conditions (e.g. Unlike traditional finance, there are no banking or legal intermediaries. Can you explain the concept of decentralised finance, or “DeFi” as it is now called?ĭecentralised finance provides access to financial services such as credit or asset exchanges (mainly crypto-currencies).
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