How DeFi Is Changing The Financial Landscape

Enhancing personal liberty through peer-to-peer finance.

Decentralized Finance or DeFi is poised to bring numerous opportunities to the global financial industry. This burgeoning approach to financial services has the capacity to disrupt the dominance of legacy financial systems and deliver financial products into the hands of the world’s poorest populations.

Our financial systems have long been criticised for benefiting the financial elite at the expense of everyone else. As DeFi systems become implemented we will see the benefits of financial services spreading to more people. We are about to witness the biggest change in our financial system ever in history.

Cryptocurrencies such as Bitcoin were the first products to show us what was possible to achieve through blockchains and decentralized systems. Our traditional financial models are heavily centralized and this centralization has facilitated massive financial corruption.

DeFi services operate through decentralized permissionless systems which do not rely on a centralized authority. These services are facilitated through applications known as DApps which operate on blockchain networks such as Ethereum. DApps have the potential to replace almost every legacy financial product we have today and open financial markets to vast numbers of new investors.

In the near future, financial services such as savings, loans, insurance, trading and a host of other products will be available to the individual without the need for centralized organizations. This will herald a shift in power from the corporation to the public. We covered the potential that DeFi holds for improving corporate responsibility in our previous article but the true value of the technology is yet to be fully realized.

One of the greatest opportunities for DeFi is bringing financial products to the unbanked. The rapid growth of global internet access and penetration of smart devices now means that financial services can be offered to the 1.7 billion people the World Bank estimates do not have access to a bank account. Asia will play a large part in this process as the World Economic Forum has stated that this year the region will have the world’s largest GDP. Asia will also be responsible for creating 90% of the planet’s 2.4 billion new members to the middle class.

The only things necessary to access DeFi’s services is a smart device and an internet connection.

There are a number of services which are now becoming available to early adopters of DeFi. Borrowing and lending facilities have been fraught with problems for hundreds of years but with DeFi we will soon see peer-to-peer lending become widely available. Some of the biggest opportunities for social change exist in the ability to provide microfinancing services to the poorest members of society. Our methods of exchange are also improving with the birth of decentralized marketplaces and exchanges for digital assets. The growth of stablecoins are helping to reduce the volatility associated with cryptocurrencies and will form the basis for DeFi products such as mortgages and insurance policies. Through these mechanisms, we will see finance become available to people who would not currently qualify for services under our legacy systems.

Not only will improved financial services become available to a greater number of people but the very nature of the financial industry will be improved with DeFi. The financial industry has been proven many times to be corrupt and designed to benefit the financial elite. The corruption associated with the Global Financial Crisis of 2008 and the recent record fine paid by JP Morgan for spoofing the precious metals market are just two examples of a system that has been corrupted by greed, blackmail and bribery. The decentralized nature of DeFi has the potential to change this.

DeFi systems are inherently more transparent and by their nature global. This means that the financial products of the future will not need to rely on central banks or governments, they will be governed by the community. The value of peer-to-peer networks is that they do not require third-party intermediaries such as banks or arbitrators. In many cases, the rules of participation are governed by smart contracts which are self-executing.

The opportunities that DeFi products bring to the market are enormous. Very rarely in human history do we witness a seachange that delivers empowerment opportunities into the hands of the poor. It is through empowerment that meaningful changes can be realized which benefit our human family. The powerful people who run and operate the legacy financial systems will not cede control without a fight. There will be attempts to control or degrade the values that DeFi embodies. However, in the end, the benefits of DeFi will outweigh the attacks.

Sonata Capital is registered in the Labuan International Business & Financial Centre, and invests in companies successfully exploiting the vast opportunities of the digital economy.

100% of the equity in our funds have been tokenised, and will be listed on digital securities exchanges in Labuan and elsewhere. The equity of Sonata Capital Ltd (LL16076) has also been tokenised, and the rights to the equity is represented by the SONATA security token issued on the Ethereum network.

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