DeFi is making its mark
Resilience, decentralization, money printing, or inflation… So many topics that the Covid-19 pandemic has brought back to the forefront. So it’s no surprise that there’s a new interest in the world of cryptocurrencies, which thrive on criticism of the traditional financial system. But, this time, bitcoin isn’t the only one benefiting. It’s a myriad of new names, and new players, that are emerging.
Over the past decade, blockchains and cryptocurrencies have overcome one of the Internet’s major problems: exchanging value without a centralizing trusted party. Thanks to this breakthrough, entrepreneurs, engineers, and organizations are beginning to orchestrate not only new services but also a new global financial infrastructure, emancipated from information systems jealously guarded by historical intermediaries. This is the emergence of Decentralized Finance (DeFi).
It differs from the traditional financial system by three main characteristics: it is natively digital, open to all, and operates on decentralized infrastructures. In concrete terms, the use of DeFi allows you to benefit from usual or new financial services without having to have an account with a banking institution. Insurance, loans, investments… The first bricks are already working and are generating more and more money.
Traditional finance is already in the game
While the value involved in DeFi at the beginning of the year was a few hundred million dollars, by the beginning of October it was over $10 billion. With the hype, institutional investors are starting to take hold of the subject and mix it with their usual activities to gain a competitive advantage as soon as possible.
This hybridization between DeFi and the traditional system is already taking shape, with the EMI license, allowing it to operate with traditional currencies, obtained by the “Aave” project in the UK. This company becomes the first “crypto-bank”, whose applications are directly on the blockchain. The United States is not left behind: according to a study by asset manager Fidelity, by June 2020, more than a third of US institutions, including pension funds, had exposure to cryptocurrencies. Major companies, such as Nasdaq-listed MicroStrategy and Square, a fintech valued at more than $80 billion, have purchased more than $400 million and $50 million, respectively.
Attitudes are changing: companies and banks alike understand that the wave cannot be stopped and that it is better to ride it. If, for the European authorities and banks, the sound of the bell is still too often the “blockchain good, cryptocurrency bad“, the ecosystem is at the forefront. Many European people work on the main DeFi projects, including foreign ones. Let’s mention a few “European” projects that are well identified in the global ecosystem with the aggregator ParaSwap, which has just raised more than 2 million euros: Jarvis Network, allowing everyone to become a broker, Aleph, which works on interoperability in DeFi, or Kleros, a private arbitration system on disputes in the digital space.
DeFi is not necessarily better than the traditional system, however. Whatever its strengths, it is today in many ways less efficient, less mature, more challenging to use. All this is normal for a nascent ecosystem, and it would be a shame to repeat the same mistake for the umpteenth time: considering that this state of affairs is permanent and that because a nascent innovation is risky and imperfect, it has no future.
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