So DE-FI or decentralised finance is a new buzz word making the rounds in the blockchain space. At the moment, the Ethreum community thinks they have a monopoly on the concept with most DE-FI platforms using the ETH chain to build their products, but it is why no means exclusive to ETH.
We will see other chains run De-fi dapps and I am sure it won't be long before HIVE-FI platforms are set up as we already have dlease and informal DE-FI services through many projects on the chain.
DE-FI, on the whole, is a great idea, it will be the future of all finance in the future as we move to blockchain and CBDC's we will see plenty of fintech companies building on both government chains and private chains.
My problem, however, is that people see DE-FI as only a get rich quick scheme both for developers, investors and there very little focus on the productive use of capital.
Productive use of capital
At the moment, lots of De-Fi platforms are looking to try and either pay you via inflation or the difference between leaning and investing currencies for collateralised loans. It's by no means revolutionary concepts the banks built their entire business model on this which shows you the upside potential and the growth for this sector.
People are looking for capital when they are cut off by certain centralised institutions, and others are looking for yield. At the moment in the DE-FI space, more people are looking for return than people looking to do anything productive with the capital, which is my most significant concern.
The popular DE-FI or rather CE-FI since its custodial in Block-FI, Crypto.com and Celsius Network all offer collateralised loans while crypto.com also offers payment services with a fee involved. Both are very similar to banks, but with a smaller middle man, there are favourable terms for investors.
However, its only one use case, a loan against your crypto, eventually loans of this type will reach its peak, and new products with more risk will have to be introduced to keep the yield coming in.
Possible uses for De-FI capital
As I mentioned, we need to look to the future with more productive uses for DE-FI. Perhaps using the grouped capital to buy things like corporate bonds/debt with a good track record, such as investment-grade bonds.
The pooled capital could be used to fund small businesses or support VCs and angel investors so you et a small piece of a range of companies in their portfolio and hope for an exit and return on your equity.
This could give people access to markets of return that were previously closed off to them and drive better capital allocation over time.
DE-FI drives the need to HODL
DE-FI helps you create different passive income opportunities with you crypto other than a hedge against inflation. While HODL'ling will be widely profitable for many who do it long term, it's not an incentive structure that is natural to us who have the recency bias of living in an inflation saturated world.
DE-FI allows people to use a deflationary asset or one that is pegged to a deflationary asset and secure additional RIO and driving a further need to accumulate and HODL long term.
Having something they understand like interest payments in a world where negative, no or low interest is the order of the day we can see why De-FI can become a popular medium for capital to flood into at this point in time.
Taking to account that the asset you investing with lets ay BTC as limited supply it only drives up scarcity if the asset is HODL'ed or wrapped and locked into smart contracts.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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