Decentralized Finance: It Doesn’t Need Disruptive Technology, It Needs Adoption

Any time global finance is mentioned, it seems as though words like “cryptocurrency” or “decentralized finance” are only muttered in small circles. They remain a part of the subculture as opposed to being mainstream.

The concept of decentralized finance (DeFi) has been around since the beginning of time. Cryptocurrency has been around for over a decade.

What does the industry have to do in order to be mass adopted by the real world?

Satoshi Natakmoto is behind Bitcoin, which was founded in 2009. Many consider Bitcoin to be the first cryptocurrency. It was his anonymity and mining incentive that led to the uniqueness of BTC as well as its success.

Although Bitcoin is new and unique, it spawned as a result of ideas that are much older. If democratized money and finance will ever find a true footing in global finance, it’s important to explore how cryptographers have been working since the 1980s to make something happen.

The “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups” was invented in 1982 by David Chaum, a cryptographer. Other cryptographers contributed heavily to the groundbreaking technology as well — Hal Finney, Vitalik Buterin, Adam Back, and Nick Szabo are a few that come to mind.

All of these cryptographers conducted research and made it possible for Satoshi to create Bitcoin.

Each of these cryptographers were looking to solve real-world problems.

Now, as technology continues to evolve, it allows for the infrastructure and devices that power cryptocurrency to evolve. Bitcoin and others like it are only as good as the tools that it can be used on.

It is no coincidence that Satoshi created Bitcoin at the same time the iPhone was invented. It is through the iPhone’s infrastructure that cryptocurrency has been made easier. As smartphones have gained more momentum, mobile developers can create apps that serve as crypto-wallets and other tools. It ensures that millions of people around the globe can hold cryptocurrency in the palm of their hands.

Banks and other financial institutions, too, are using technology to offer more financial services. However, many of these traditional avenues are slow to adopt — and much of that has to do with the way in which their infrastructure operates.

Innovation Explodes

Bitcoin showed that cryptocurrency is not only possible but that it’s also promising. It led to others exploring the technologies to improve upon Bitcoin.

Enter Ethereum (ETH). Ethereum launched in 2015 and has grown by leaps and bounds since first hitting the market. It may have also led to the disruptive ICO craze where everyone wanted to create a coin.

$800 billion later, it was clear that there was a cryptocurrency market and that many were looking to capitalize on it. The technology demanded attention because it proved that it was capable of being something. It was no longer simply an idea that cryptographers were talking about — it was active, it was being traded, and it showed the promise of being great.

Political and financial leaders around the globe had no choice but to acknowledge its presence. Would they look to regulate it or leave it alone? Would they allow it to enter into their financial plans for the future? Many of these questions are still being asked and still being weighed.

Ethereum has become the standard for all non-Bitcoin experiments. And a lot of industries have played with the Ethereum platform to see how it can benefit them. Supply chain management, real estate, identity management, and prediction markets are a few to have entered the ETH arena.

All of this innovation is impressive, but the biggest push is within decentralized finance.

Many open-source projects have proven that it’s possible to give people more control over their money. Projects like Yearn.finance, Compound, and Uniswap have taken the tech world by storm. $11 billion is locked away in smart contracts that provide liquidity to financial services and institutions. Suddenly, payments, loans, insurance, and more are on a decentralized exchange platform.

Forget about asking permission. Decentralized finance doesn’t play by the rules. It’s why banks don’t want to acknowledge DeFi. They’re scared of it. They don’t want anyone interfering with their long list of rules that they use to skim money off of hard-working individuals and businesses.

DeFi is the opposite of the legacy banking infrastructure. Anyone can build and launch a financial product. It prevents having to play with those who hold a monopoly over a particular financial service.

Many individuals and communities have been underserved by banks. They choose to be unbanked because they don’t trust the bank or because they can’t afford the fees that come with holding an account. Through decentralized financial services, it makes it possible to be more equitable. It opens up the possibility of economic growth for those who are currently underserved and unbanked.

What if it’s possible to allow everyone to participate in a safe and compliant way? While banks don’t always have what people need, they are still an important part of the finance world. Perhaps one of the reasons why DeFi has been slow to become mainstream is because too many crypto players want to keep the banks and financial institutions out of the equation.

The DeFi market can grow and reach the potential of trillions of dollars, but only if there’s a way for institution money to participate. Everyone who uses institutions for holding their money, for loans, for insurance, and more want to have the same fancy tools and services that are being used by those with cryptocurrency.

So, it’s time that DeFi is redefined. It’s about getting all of the players into the game instead of just a select few.

The End of Centralization?

If the technology is already here, does that mean that centralization is over?

Corporations build themselves on the idea that management sits at the top. Visions work their way down to the bottom where the employees sit. It’s a top-down perspective where all major decisions are made in the boardroom. Employees are powerless.

DeFi projects reverse the way that corporations are built. The goal is to decentralize governance so that the people have the power. Bottom-up perspectives are created so that boards of directors, treasury managers, and more have to relinquish control.

There are benefits to a bottom-up perspective. Not only does it give the power to more individuals, it also eliminates a single point of attack — either from a malicious entity or a nation state.

Many people are tired of the political corruption, the wealth inequality, and the tech monopolies. It’s why there’s so much innovation focused on decentralization at this point in time.

The goal is to take the power away from those who are most likely to abuse it and to hold it over the heads of the masses.

Throughout the crypto community, there is evidence of radical decentralization. Is it extreme or is this what is needed to solve the problems plaguing society?

The centralized institutions have done this to themselves. It’s necessary to take back at least some control, though there may not be the need to decentralize it all.

The Next Steps

As DeFi continues to evolve, it makes it difficult to determine what the future will look like.

Billions of people around the globe shouldn’t have to choose to walk away from centralized institutions that they have established trust with. That trust is important. Instead, the crypto players have to figure out a way to include them.

There are a lot of questions looming…

What decentralized innovations will take centerstage?

How will payments be handled as liquidity moves to decentralized platforms?

What creative ways will be used to speed up transactions?

What incentives will be used to attract individuals and businesses to choose DeFi?

DeFi technology has been estimated at only reaching 1.2% of the global population. Although it’s capable of a great transformation, there’s still the need to reach 99% currently left out of the equation — and that’s where the financial institutions and their experience can come into play.

As the blockchain infrastructure continues to evolve as new technology becomes available, it’s going to change consumer behaviors. The only question is, when?