15 Sep Decentralized Finance (DeFi)
Decentralized Finance (DeFi) The buzzword of 2020. Interest is growing exponentially. Is that good for blockchain, or is it the next bubble after the ICO hype of 2017?
You may already have heard something about it. It is, in short, delivering financial products using decentralized technology. Products such as savings, loans, asset trading, insurance and mortgages can be taken out and traded with DeFi by anyone with an internet connection without the intervention of an intermediary. Direct, transparent, automated interaction between provider and buyer. There is no longer a central authority, company or body that offers, approves and monitors these products. Autonomy of the user. Safer, faster and cheaper. The ultimate form of automated trust.
Of course, DeFi first and foremost raises the eyebrows of the traditional banking sector. “Cut out the middleman” is not an attractive scenario. And governments also see various risks due to a lack of control options. Instead of traditional governance models, it is now the (transparent) software code that determines. Nevertheless, researching and testing the usability of DeFi is going fast. For example, DeFi platforms such as Compound and AAVE are being looked into worldwide. Here you can lend out crypto money at an attractive ‘interest rate’ (in real euros) without the intervention of an exchange or bank. With a wallet on your smartphone. The idea is to use cryptocurrencies to serve as collateral so that others can borrow it from you at an interest rate.
This blockchain application therefore makes the bank redundant as a ‘middleman’. And it is cost-efficient and non-discriminatory. But there’s no one left who can keep an eye on your money or help you with a wrong transaction. You are entirely responsible and must also have confidence in an underlying blockchain protocol…
By means of DeFi there will be an alternative for every financial service. But without the intervention of a trusted party. Supply and demand are brought together directly by smart software. And by means of smart contracts, the financial agreements are recorded and executed in an unchangeable and transparent way. No one has the ability to influence, stop or modify transactions. And, given the political situation in various countries in the world, that’s quite handy! Partly in view of the fact that almost 2 billion people on this planet do not have access to any banking service, DeFi may well be the “killer-blockchain app” for the years to come.