DeFi Is Going To Change All Of Finance

almost 3 years ago

Cryptocurrency is full of speculation. We know that based upon price action. There is, however, another form of speculation that is taking place surrounding this industry: what the future is.

If you listen to most of the mainstream economists, this is just a passing fad. Bitcoin and the rest of cryptocurrency is just another toy that people are being upon. After all, there is no intrinsic value to any of this, according to them.

The reality is listening to economists is a pretty foolish thing to do. Years ago, in my travel down that path, I realized it was nothing more than an academic exercise. Hence, I can state from experience that economists truly are disconnected from what is taking place.

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Decentralized Finance (DeFi) is one area of cryptocurrency that is going to radically alter society. Certainly, we are in a period of mania and scams. We simply are going to have to work our way through this. Nevertheless, the proverbial baby and bathwater come into play. The fact there are nefarious players right now does not mean this is to be overlooked. We are seeing structured platforms being built that will enable the thriving of a completely new industry.

We live in a global marketplace. There is little denying this. At the moment, we can freely exchange data and goods. Money, on the other hand, is painful to deal with. We know the existing system is slow, unreliable (corrupt) in many areas, and based in an analog world. Many settlements are still conducted based upon paper verification.

This is pretty amazing when you consider that trillions of dollars worth of goods are shipped all over the world each year. The fact that the system is so inefficient is really telling of how much is being wasted.

Intermediaries are everywhere. Here we see someone always with their hands out. Throughout many processes, people are taking a little piece along the way.

We are in dire need of digitization and cryptocurrency is the piece that will complete it.

To consider how absurd much of the present system is: think back (or imagine) what it was like to send information around the world without the Internet or even facsimile machines. Ponder what the flow of information was like when information was physically sent.

While the financial system is a step beyond this, it is not by much.

Slow settlements result in a slowing in the velocity of money. This is a problem across the entire global economy. It is a number that plunged, in every currency. The longer it takes a company to get paid, the less that money will travel through the system in a given period of time. Here we see banks actually hindering the flow since they want to suck every ounce of interest they can by holding the money. A few extra days when there are billions of dollars traveling through can really add to the bottom line.

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We also see start up capital in massive need of an overhaul. Here again, it quickly becomes evident how DeFi can solve this problem.

Banks will not touch start ups for the most part. Funding these entities is not truly in their business model. They use pertinent data for that firm to decide creditworthiness. The challenge is that a start up does not have this.

This led to the establishment of an entirely new form of lending: venture capital. It, too, is a system that is wrought with issues. Most of them are outside the scope of this article. The big key is that it is a closed system that depends more upon who one knows.

DeFi creates a completely new funding model. With move value being generated in the crypto realm, we are seeing the ability to collateralize, tokenize, and NFTs just about anything. Over time, as this number increases, more can be funded as a result of what is already in existence.

In essence, the pile will just keep growing as we add more on top of it. All of this can be leveraged into more innovation and expansion.

The tokenization of an idea does not require a credit score or development of financial documents. Instead, it simply needs people who believe in an idea. This is how Amazon was started. Of course, it helped that Bezos' parents had the $250K of initial seed money. Since most do not fall into this category, other measures are required.

How many Amazons are not pursued because an entrepreneur does not have access to $250K? When we think about it, that is only 25K tokens, sold at $10 each. On a global scale, that is not a lot to move.

At the present moment, we are not to the point of funding things of this nature. We are operating on a smaller scale. To start, less money is easier to fill. That is why we see a lot of the projects getting a much smaller figure, albeit with dreams not quite to the level of Amazon.

Another reason is that anything large will likely alert the regulators. The system is still rigged against this type of funding. Thus, those who turn to the market for capital are at risk of getting in their crosshairs.

It is a problem that will likely be alleviated as the infrastructure of decentralized financial systems get built out. We will see a period where companies are hybrid; they operate in crypto but adhere to the regulations. Eventually, I foresee the system getting so big (and spread out) that the regulations will not matter.

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When most think about DeFi, they only consider the idea of personal finance. This is where we got the concept of yield farming and "filling one's bags". It is a starting point but truly on the tip of the iceberg.

The revolutionary aspect to this is when business finance is considered. Here the numbers get much bigger, very quickly. Whereas the personal achieves a certain level, the business side of things ends up taking things 100x higher. This is where the real money operates.

We are going to see billions more people joining the Internet over the rest of this decade. Already, there are 5 billion minds online regularly. These are people with ideas, initiative, and passion. What they are lacking, in many instances, is capital. DeFi is the world that can change that.

This is the early stages. However, it is not difficult to see how those platforms that are forward-thinking will start planning for this expansion. Breaking into business finance will really be what sets DeFi roaring.

If we think it is growing at a fast pace now, consider what will happen when tens of billions are not going to yield farming but, rather, start up companies. Then we will see economic growth through this area explode.

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DeFi Is Going To Change All Of Finance

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DeFi is definitely the future