Will 2023 be the year DeFi goes mainstream?
Well, 2022 was a tough year in crypto. (I thought we’d start with an understatement!)
The big question for the DeFi industry now is whether 2023 will be the year that Decentralized Finance goes mainstream.
With its focus on community-driven governance and decentralized technology, DeFi is perfectly poised to revolutionize the world of finance and bring power back to the people. But will widespread adoption happen, or is the industry too damaged at the moment?
Corruption is a disease. Meet the cure
This year has been a year of epic collapses, and for the most part, these weren’t accidental anomalies which just happened to occur due to a coincidental confluence of “some unusual events”.
On the contrary, almost all of them were as a result of fraud, manipulation and bad actors, pure and simple.
We all thought that crypto was supposed to weed out these nefarious actors. But it seems as though some high profile people were making too much money, and greed has a nasty habit of guiding human behaviour.
Nowhere was this more obvious this year than in the crypto space. But let’s not forget that the events this year in crypto were largely thanks to centralisation — of control, power and money. CeFi, it seems, is as big a bad-boy as it’s older cousin, TradFi.
If anything positive has come out of this, though it’s that DeFi, that is truly decentralised protocols, actually came out through most of it relatively unscathed.
TradFi has always been the problem
Despite TradFi institutions being subject to a wide range of laws and regulations for years, with violators of these rules being subject to significant fines and penalties, the list of institutions who keep breaking the law is vast.
You might be tempted to think that getting fined (sometimes many millions or billions of dollars) would be enough to stop these kinds of shenanigans, but alas, no.
Despite some of the largest fines ever being imposed on financial institutions for breeches of anti-money laundering regulations, manipulation of foreign exchange rates, and the mis-selling of financial products, the actual amounts paid are insignificant compared to the vast amount of profits being made through engaging in illegal activities.
As a result, one could argue that these fines are simply the cost of doing business on Wall Street, and the government is just making sure it gets its cut.
Corruption it seems is a chronic disease in TradFi which nobody has yet managed to find a cure for, and certainly, CeFi isn’t offering any different solutions. If only people decided to stop trusting the corrupt financial system and turn instead to DeFi.
But despite the fact that most people already know that deep down the financial system (and certainly the banking establishment) is utterly corrupt, still the majority trust legacy institutions who simply cannot be trusted to be honest to handle their money.
So is the idea of a massive DeFi revolution all just a pipe-dream, or will there really be a popular movement of people wishing to completely bypass the banking system altogether?
Ultimately, the key reason that people still use banks, despite everyone knowing their track record, is that they’ve created really simple tools that everyone understands.
From contactless cards to Apple and Google Pay, online banking and simple to navigate mobile apps, there can be no question that the TradFi world really understands how to make it easy for Joe Normal to adopt and adapt to their way of doing things.
This is where DeFi protocols should take heed. If we can create financial services which are seamless and easy for ordinary users to engage with, then our sector stands to gain an increased market share.
The compelling argument for DeFi
As more and more people become fed up with the traditional financial system and its centralization, DeFi, with its the philosophy of decentralisation and empowerment, seeks to create a more open, transparent, and inclusive financial system that is not controlled by a few large institutions, but is instead accessible and usable by anyone.
In a DeFi ecosystem, the community is in charge and decisions are made democratically. This is a stark contrast to the centralized and often opaque nature of traditional finance, where a small group of powerful individuals make decisions that affect us all.
DeFi also offers a number of technical advantages over traditional finance — Its decentralized nature makes it more secure and resilient, with no single point of failure.
It also allows for faster and more efficient transactions, as well as lower fees. These benefits are particularly appealing to those who have been left behind by the traditional financial system, such as the unbanked and underbanked.
Furthermore, DeFi doesn’t make you happy because you no longer own a thing, doesn’t grant the government unprecedented powers to seize your assets or limit your withdrawals and it won’t censor you because of wrongthink.
The only reason that 2022 saw increasingly authoritarian moves from governments all over the world was that they could get away with it — TradFi, and even CeFi crypto exchanges allowed them to literally do as they pleased, and nobody could argue because — well they’re the government.
DeFi of course doesn’t care about government.
It works regardless of whether the government says you’re allowed to do it or not. And this is why many would argue, in a world where even the average Joe has started to realise that the elites seem hell-bent on imposing autocratic control over every aspect of your life, that DeFi is going to win out in the end.
Because freedom has a way of surviving and re-growing, even when all seems lost.
Societies TradFi Stockholm Syndrome
These, one might think, are compelling arguments for DeFi over the traditional financial system. So why is it that still a minority of people have taken the plunge into crypto, and even fewer still into DeFi?
Although DeFi’s offer of a more open, transparent, and accessible financial system is extremely appealing, many people are still hesitant to adopt it.
Is this mostly due to its complexity, lack of convenience, and potential security risks, or is it simply that a majority of people are either unaware of DeFi — or are we as a society still holding onto a vague hope that all will be well in the traditional system?
DeFi, of course, is still a relatively new and unfamiliar concept to many people. Whilst terms like Permissionless blockchain networks and smart contracts are sweet nectar to those of us who get DeFi, not everyone understands what these terms mean, let alone what the problems inherent in existing financial structures are. And not understanding a thing has oft been equated with distrusting it.
That said, one of the big changes that we see coming over the coming year is the change in language and the conversation around DeFi versus CeFi/TradFi.
This conversation is already happening, partly driven by rampant inflation crushing family incomes, and partly because the mainstream media is collapsing, with more and more people turning to independent and alternative sources for their information.
It’s within this framework that the conversation is — slowly — starting to happen, more and more, and, for DeFi, this is going to change everything!
The risks (and rewards) of Wall Street’s entry into the DeFi market
Of course, the growth of DeFi has not gone unnoticed by the traditional financial industry. Many incumbent players are starting to take notice of DeFi and are exploring ways to incorporate it into their own operations.
In many ways, this is a testament to the power and potential of DeFi, as it is starting to attract the attention of even the most entrenched and skeptical players.
But established institutions rarely participate in good faith.
One of the biggest threats facing the industry (should that be the world?) remains the growing threat of Central Bank Digital Currencies.
CBDCs are digital versions of national currencies, issued and controlled by central banks. What could possibly go wrong?
CBDCs are the polar opposite of DeFi. They are centralized, controlled by a small group of individuals, and lack the transparency and accountability of DeFi. They also pose a threat to the decentralized nature of DeFi, and can potentially be used to exert control over the DeFi ecosystem.
Imagine if you will a programmatic CBDC which prevents individuals from being able to buy cryptocurrency (or indeed anything, if you’ve been designated persona-non-gratia by the powers-that-be). Suddenly, DeFi is threatened by the inability of users to on-ramp.
If you think that’s just a tin-foil-hat conspiracy theory, check out what’s been said by the deputy MD of the IMF.
That said, institutional (and government) interest in the power of blockchain technology might lead to an increase in interest in truly decentralised cryptocurrencies, like Bitcoin.
In order to sell the idea to the masses, it’s increasingly likely that people will suddenly become more aware of the counter-arguments to CBDC’s through exposure to the very news sources telling them that digital currencies are suddenly a good thing (remember when they tried to tell you that Bitcoin was only used by terrorists and criminals?).
If (when) governments decide to replace physical cash with a CBDC, there may well be a significant popular backlash from people who suddenly become concerned about issues such as privacy and security.
Those who are distrustful of government, but who have not yet entered the cryptospace, could well swell the ranks of hodlers as they look for an alternative which is out of the control of the financial elites.
This is the first step, and as more and more people become disillusioned with the traditional financial system, there is a strong chance that many will flock to DeFi in search of a better alternative to getting ripped off by the banksters. It would be sweet indeed if the hubris of the centralised, TradFi world backfired to the point that literally nobody used it anymore.
DeFi will only continue to grow
Despite a tumultuous year for crypto, 2022 has continued to demonstrate that DeFi projects, those which hold true to the fundamental philosophy which brought many of the OGs into the space in the first place, will always find a way to survive and thrive.
In many ways, this year has been very positive for the future of crypto, as its provided a wake-up call to those of us who became enamored with generating massive yields whilst providing little value or substance to the industry.
Suddenly, there’s no more talk on Reddit about 1000% yields (this has been replaced by endless loss-porn about losing life savings in one of the epic collapses of the year).
One could argue that 2022 is the year that crypto-teenagers started to grow up a bit, and ’23 could easily be the long-awaited maturing.
Building our way out
And as the DeFi ecosystem continues to develop, we are seeing more and more innovative projects and applications being built on top of it.
From stablecoins and decentralized exchanges, to lending and borrowing platforms and beyond, the possibilities of DeFi are virtually limitless.
Of course, we are determined to make sure that Bumper plays a crucial role in the accelerating adoption of DeFi as an alternative to the corrupt financial system.
Bumper’s decentralised risk market works on the principles of fairness in pricing, creating a level playing field between actors on both sides of the trade, regardless of how big their crypto holdings are.
As the DeFi industry evolves, it is important for the community to stay vigilant and ensure that the principles of decentralization and community-driven governance are upheld. This will be crucial in the face of threats from CBDCs and other centralized players who seek to undermine everything that DeFi stands for.
So if you’re tired of the status quo and ready for a financial system that puts the power back in the hands of the people, keep an eye on DeFi in 2023, and especially on Bumper. It’s going to be a wild ride!