DeFi: Decentralized finance ready to change the rules of the game?

What’s all the fuss about DeFi? These decentralized technologies introduced by blockchain, cryptocurrencies and smart contracts are changing codes, paradigms, opportunities, responsibilities, types of investments, rates of return, but also individual management of taxes and capital, and on a massive scale.

On a date, the subject of international finance or banking regulations is rarely brought up because the subject is not very glamorous. Let’s be honest… a thousand clichés come to mind, such as opaque, incomprehensible, costly, slow, constraining, obsolete, Kafkaesque, and worse institutions.

However, for some time now, an unlikely phenomenon has been reshuffling the cards of the classic finance game and we are witnessing live the ulcers of traditional players, the hallucinated observations of concupiscent observers, the euphoric comments of new winners of the crypto sphere, seeing themselves already millionaires and super glamorous.

This phenomenon of DeFi in the crypto sphere fascinates, disturbs, intrigues but also questions the value and legitimacy of current financial systems around the world.

DeFi, an O(F)Ni made in blockchain?

DeFi is the acronym for Decentralized Finance.

  • The word Finance refers to the traditional and classic financial tools that have existed since the dawn of time, such as buying and selling currencies, transferring money, loans, credits, trading, betting, and insurance. On this point, there is nothing new under the sun.
  • The word “Decentralized” refers to the basic mode of operation of blockchains: each protocol is carried by a multitude of servers to carry out instantaneous transactions – synchronized / uncensored / immutable / non-retractable -. Transactions whose actors’ addresses, amounts and contracts are visible, transparent, and auditable by everyone on the Web browsers. It is notably on these points, of instantaneity, transparency, reading and study by anyone, that the game takes another color.

What are the claims of DeFi?

The DeFi players propose to create an alternative financial system to the existing financial industry.

Actors create new values and typologies of services only accessible on Web 3.0 (that of the blockchain, that is to say: decentralized services hosted on a multitude of nodes on blockchain technology) by combining 1 heteroclite set of blockchain protocols and 1 heteroclite set of existing financial services reproduced. The whole is mixed in order to create a set of new opportunities around individual and collective financial tools of today only accessible via these technologies, and therefore impossible to replicate in the world of traditional finance.

The objective of DeFi – beyond the apparent and real profit – is the creation of financial values, accessible to all, in a decentralized and unmediated way, instantaneous, transparent, and logical, to make transactions, to create and manage one’s savings, to trade, to obtain returns with tools and on financial values not regulated by the usual central bodies

Pitfalls or paragraphs written in small print?

There is nothing magical about DeFi because everything is managed by computers. These financial tools can only exist thanks to the capabilities of computers, websites, crypto currencies, blockchains, smart contracts (small self-executing programs, i.e. programmed to be triggered automatically on a predetermined event, between an issuer and a recipient having validated this contract on the blockchain).

But as everything is designed thanks to computer code, any pseudo-coder-of-genius can generate an application and offer for sale any type of product in free consultation on the Web, with duplicity or in good faith about its offered services.

DeFi is a very old concept

DeFi is composed of tools that have been known since the dawn of time to:

  • Make transactions, i.e., buy or sell all types of items with all types of currencies
  • Save and manage your savings with interest rates (borrowing / staking)
  • Requesting credit, with interest rates, mortgages, or collateral (loan – lend)
  • Trading in stocks, derivatives, currencies, forex
  • Playing the lottery or making bets

But as the banking and financial industry is an old grandmother that has not been shaken up or questioned for decades or even centuries, the arrival of DeFi, with its rules, its success, its popularity, its “show-off” and its financial capacities scares away its hushed and discreet habits, its rules of conduct in a very closed circle, its collectively accepted conventions, and its legal protectors.

The same is true for the traditional government and legislative actors who feel powerless in the face of these new actors who are intrinsically beyond their control and regulation. In fact, these institutions react – but after the fact – by inventing legal and technical tricks to protect themselves and guarantee their taxations.

Nothing very new then… so why all this noise about DeFi?

All old news, of course, except that these decentralized technologies introduced by blockchain, crypto and smart contracts are concomitantly changing codes and actors, paradigms and opportunities, responsibilities and ownership, types of investments and rates of return, and the individual management of taxes and capital, and this on a large scale.

Before our eyes is being created a whole new alternative ecosystem to the existing one, with new types of investments, gains, and losses beyond the control of traditional and legislative actors… and this is only the beginning.

Perplexed by the advantageous, dizzying, and insolent interest rates?

Indeed, if some promises of hallucinating rates come from scams that want to attract the naive and gullible Beotian, many serious financial applications of centralized or decentralized sites are justifiable simply by the fact that they propose the updating of old financial tools outside the walls, without physical agency nor lease, nor employee nor HR nor employer’s charge to pay, nor IT infrastructure or IS to maintain, nor controls on controls, nor clearing house, nor. … or… in short, a whole set of variable charges and fixed costs that are eliminated and reinjected into the % of gains to users and communication.

To summarize: IT, blockchain, smart contracts offer an update of this institutional industry with a drastic reduction of delays and costs and above all increases in security (which is often forgotten because security is overshadowed by stories of theft and scams carried out by sophisticated schemes but sowing doubt and misunderstanding about the security of the whole cumulated).

How to find your way around and not be caught up in a scam?

If I walked down the street and approached you – a stranger – to sell you the Moon or the Eiffel Tower…, do you really think you would believe me and give me a blank check like that?

This is pure madness. So why be less reasonable when you surf the Web than when you walk down the street?

In computing, the Web and therefore DeFi any pseudo-coder-genius can generate a centralized/decentralized application with or without a native token and create any kind of product and put it on the Web market in free consultation with a good SEO.

What are the challenges and repercussions of tomorrow made in DeFi?

All sectors of traditional finance can be placed (and not replaced) in this alternative finance context. Since its emergence, the ecosystem is being structured, projects are progressing, capitalization continues, early adopters are making little ones etc.

NB: DeFi (with 7 billion dollars) represents a very small part of the global Ethereum ecosystem capitalized at more than 47.8 billion dollars. A micro drop of water in the ruthless universe of international finance.

Some players are already referenced as serious, stable and with the best user experiences

But in the face of the breath of these valiant, agile, and popular heralds of DeFi, other heavier players, such as the European Commission, which is drafting regulations, directives, and laws, are standing up and fighting back.

Despite everything, in some European countries, many small players, like small David, are federating, watching, and reacting so that the regulations being written at the Commission are not as firm or closed as it suggests.

Indeed, blockchains are a technological reality and crypto is a real economic reality to be estimated in time, especially with all their economic, political, and financial issues. Even if the DeFI is not understood by the institutions, the opportunities of these innovations are such that it is necessary to insert them in the field of the reflections of these directives and laws, despite any misunderstanding or illusory and temporary will of stability.

In fact, while the United States and the Crypto Valley made in Switzerland have already ratified new use cases for applications and types of investment in DeFi, Europe is trying to legislate to restrict them.

Predictable consequences: we can fear the worst because by opposing innovations and their ecosystems – creators of value and financial flows from investors and consumers – the lifeblood of the future (human and financial resources) could continue to migrate elsewhere, to more favorable territories, outside of Europe, not necessarily far away, just next door even, but where you can buy your train tickets on the platform or pay your taxes in bitcoin or go to the local ATM to withdraw cash. (Switzerland, Holland, etc.)

Use defi to avoid these situations. Venice Swap is the answer for your DeFi search.

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