The core reason why Defi is not working

Photo by Akinori UEMURA on Unsplash

Defi or decentralized finance is an alternative way to traditional finance. It sounds fancy, but it does not work in reality. Here is why:

Securitization

You cannot ignore the innovation of securitization that gives banks a further push on their asset management and expand their operation into more risky asset management in modern finance.

In the past, banks heavily relied on deposits from users, but with securitization, banks can turn illiquid assets into liquidated assets while raising more cash to make more loans.

In theory, a bigger pool with more loans can reduce default rates and make such financial instruments more secure.

In reality, it will trigger a chain reaction and melt down the entire finance in a second.