The Revolution is Now: How “DeFi” is Rocking the Global Financial System

Conventional financial tools built on the blockchain are sparking a blossoming, explosive ecosystem to challenge legacy finance. Here’s why.

Tiffany Madison
Aug 21, 2019 · 7 min read

TL;DR HIGHLIGHTS

  • One of the most active sectors of blockchain in 2019
  • Advances in blockchain technology and a clearer regulatory environment have set conditions for an explosion of innovative finance products
  • It is highly likely that more decentralized financial solutions will be created in the near future
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In what has become a fitting rallying cry for blockchain enthusiasts everywhere, ‘DeFi’, a clever portmanteau of ‘decentralized’ and ‘finance’, is seriously shaking up the world of traditional centralized financial services. We adopt the following definition of decentralization proposed by Rohit Khare. “A decentralized system is one which requires multiple parties to make their own independent decisions” In such a decentralized system, there is no single centralized authority that makes decisions on behalf of all the parties.

In theory, decentralized finance offers all of the same services and products as the traditional finance world. However, DeFi uses distributed ledger technology, including blockchain, cryptocurrencies, smart contracts, and decentralized applications, to offer services such as loans, financing, and credit arrangements; often without the need for a centralized authority.

As a result, there’s been an explosion of companies seeking venture capital to fund the next wave of decentralized innovation in the financial services industry. These include crypto-asset lending, crypto-backed loans, token leasing services, and blockchain-based banking operators.

Some of these services are simply decentralized versions of their traditional counterparts, albeit with all the virtues of blockchain, such as borderless transfers of value and low transaction fees.

Here’s Why the Decentralized Finance Revolution Has Arrived

The major difference is that by virtue of blockchain technology, anyone can now loan their capital in return for digital asset collateral to borrowers worldwide. Collateralized assets could include Bitcoin, Ethereum, stable coins like Tether, or even digital collectibles. Although there’s a certain degree of counterparty risk involved in lending peer-to-peer, as the other party could default on their repayments, lenders could use smart contracts to confer themselves some legal protection.

Similarly, crypto-backed loans offered through regulated platforms are also gaining traction. Many blockchain maximalists have the majority of their capital tied up in digital assets, and with the frequent wild swings in the cryptocurrency markets, some investors may be reluctant to exit their positions.

Instead, crypto investors may now borrow fiat against their digital asset holdings. This means that instead of selling their holdings in the event that they need emergency cash, they can instead borrow against them and pay back funds over time.

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The Revolutionary Rise

As a result, it’s predicted that the token leasing economy will grow alongside the digital asset markets, especially as more decentralized applications and blockchain-based services emerge.

The Largest DeFi Startups to Date

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Source: Fintech Collective
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Source: Fintech Collective

Another area of traditional finance which is ripe for decentralization is online banking. Blockchain startup Crypterium, which big four consultancy firm KPMG describes as ‘one of the most promising fintech companies’, is a decentralized banking services provider. Crypterium allows its clients to pay bills, store funds, and spend their digital assets via a physical debit card, all linked and managed through a single app — just like current digital banking solutions. Crypterium launched with a huge initial coin offering, or ‘ICO’, during 2017, which at the time was one of the largest ICOs ever concluded — raising a massive US$51.6 million.

Where digital token-based economies are emerging, new marketplaces and exchanges are being developed to facilitate the transfer and lending of these exciting new assets. Chintai, the first 100% on-chain token leasing exchange to be developed, supports the exchange and lease of virtually any digital asset available, including digital collectibles. Owners of digital assets can generate passive income from their holdings, without ever relinquishing control of their tokens. Chintai has proven its utility by integrating with the EOS mainnet, generating 65,000 EOS as interest for its lenders in just one week at its peak. (Disclaimer: Chintai is a client)

A New Paradigm of Finance?


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DecentraNet is a purpose-driven investment and advisory…

Tiffany Madison

Written by

Co-Founder @AMMAHealing, Partner @Decentranet, Co-Founder @D10e, communicator, writer, ENTJ. Free speech ❤ #blockchain #bitcoin #crypto #liberty #hempheals

DecentraNet

DecentraNet is a purpose-driven investment and advisory firm specializing in blockchain and other transformational technologies with a global impact. Contact us about helping your company thrive at hello@decentranet.com.

Tiffany Madison

Written by

Co-Founder @AMMAHealing, Partner @Decentranet, Co-Founder @D10e, communicator, writer, ENTJ. Free speech ❤ #blockchain #bitcoin #crypto #liberty #hempheals

DecentraNet

DecentraNet is a purpose-driven investment and advisory firm specializing in blockchain and other transformational technologies with a global impact. Contact us about helping your company thrive at hello@decentranet.com.

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