What is Decentralized Finance Why "DeFi" Will Explode in the 2020s

A frank look at why decentralized finance has a near-unmeasurable ceiling.

By
Kyle Heise
on
June 18, 2021
Category:
Dive Into DeFi

The Unsung Hero of Our Financial Future

You really can make money while you sleep. Go ahead and Google it. An easy search will show many examples from the stock market to even more unconventional ways of literally sleep streaming. Passive income is game-changing, but traditionally has been gated off to select individuals with economic privilege. One way that is becoming more and more accessible is Decentralized Finance (DeFi). DeFi is a game-changing technology to traditional investing and is poised to bring about a financial revolution.

While the media focuses on Bitcoin and its correlation to the next Elon Musk Tweet, DeFi is flying under the radar. Bitcoin is still the most talked-about cryptocurrency, but it only offers so much over fiat currency. On the other hand DeFi meets the demands and failures of traditional investing head-on. It confronts the current system while providing solutions to the problems inherent in the system. In a world where 1.7 billion are unbanked, the growth of accessibility can prove to make significant changes. The phenomenon of DeFi will increase accessibility; it will be a cheap and more democratic venture for global finance. 


An Unsustainable Path

Commonly attributed to John Fitzgerald Kennedy, the saying “A rising tide lifts all boats” suggests an improved economy improves life.

Proponents of neoliberal capitalism have cited the impact on living standards and the human growth index. But this growth has been done at the behest of many global markets. For many decades, institutions like the International Monetary Fund and World Bank imposed brutal structural adjustment programs across the globe. In recent decades, the proportion of people living in poverty increased from 62 percent to 68 percent, according to Jacobin Magazine. It is impossible to ignore the recent explosion in wealth inequality that would have made the Medicis and Rockefellers of history jealous. It is not only unjust but exemplifies the hubris of the current system-- one where continued unfettered shareholder capitalism will eat the world alive. 

It's time to make a change to our financial systems

The DAVOS echelon of the world loves to tout numbers and explanations from thinkers like Steven Pinker to make themselves feel better. But the rest of the world is waking up. Journalists like Anand Giridharadas and Rutger Bregman have been on a tear trying to tell elites, and the public, of their false hopes. Bregman gave a speech at DAVOS in 2019 explaining how the tax schemes for the rich leave millions without hope. Giridharadas has made the rounds painting a devastating image of the elite class, most notably with his 2018 book, Winners Take All: The Elite Charade of Changing the World. All the recent tax revelations like the Panama Papers and ProRepublica expose the enclave elites have carved out in the world for themselves. Creating a fairer economic system that allocates more equally can begin to chip away at poverty and this enormous wealth gap. The world is desperately in need of a solution to this growing problem and fast. This is where DeFi can bridge the gap.


A Light At the End of the Tunnel

In short, DeFi functions as an umbrella term for decentralized financial systems that operate without the intermediation of a third party like a bank. The shocking reality is that DeFi could make the bloated bureaucracy of banks disappear.

As Mark Cuban pointed out in a recent blog post: “there are no bankers, no buildings, no toasters, no vaults, no cash, no holding your money, no forms to fill out, no credit ratings involved.”

DeFi removes the friction across the multiple layers of bureaucracy across any industry. Like water must flow from the top of the mountain to the sea, DeFi creates an effortless pathway for anyone into the financial sector. Opportunity is the greatest form of inclusion. This is all achieved through leveraging smart contracts and cryptography.


The Wheels Keep Turning

The facilities of De-Fi seem to keep growing. First, one does not need to be a millionaire and open a brokerage account to invest in DeFi. Crypto transactions cost the same, whether it’s $1 or $1 million. On the flip side, crypto organizations don’t require nearly as much capital to start and operate.  As a result, overhead and operational costs are considerably lower for crypto companies.  Unlike in traditional investing,  DeFi Exchanges have liquidity providers who act as the investors who put up capital for all the transactions to occur. Users flock to the projects they love. DeFi is a world without VCs where even the smallest investor makes a difference. 


Liquidity Makes Things Happen

The brilliance of DeFi lies in the Liquidity Pool (LP) investors. This is a feature that traditional financial businesses just cannot match. Investors in crypto are rewarded with gifts and incentives as they drive and push the blockchain. Investors can deposit tokens and assets into liquidity pools, receiving liquidity tokens in return. They can then use those tokens to reclaim their share or reinvest. Many of the returns are instant and come much faster than traditional investing. Plus, through the existence of tokenized gamification, there is added enjoyment. Things like airdrops-- where investors receive extra tokens in specific intervals-- are a win-win for investors and crypto protocols. 

What makes DeFi so unique is the incentives and rewards that are unheard of and often unbelievable compared to traditional finance. For example, investors in DeFi earn yearly interest returns (APY - Annual Percentage Yield) in the hundreds and even thousands. You read that right: Thousands. The rates of return make the transition from traditional investing an almost undeniable alternative. Concepts like aggregated yield farming and compounded yield can bring users exponentially higher gains as well.


No More Interference

The stock exchange is famous for its morning bell rings to open the markets, but this is not the case for DeFi. In DeFi, the market never sleeps. There is 24/7 trading without the interference of brokers or third parties. 

 In the recent short squeeze that caused headlines, the popular trading app Robinhood halted retail trading on its platform. The platform prohibited its clients from buying or selling.  This will never happen in crypto. Interacting with a DeFi system isn’t timebound. The blockchain keeps ongoing, and the world is noticing.


Web 3.0: Rise With the Occasion

In recent weeks, there have been several countries that have pivoted to crypto. For example, El Salvador notoriously announced Bitcoin as a national currency. Nearly all these countries are lower on the GDP scale and rely heavily on foreign trade. Crypto gives these nations and their citizens a great chance to increase their standard of living. While their local fiat currency may struggle with inflation, many crypto projects have strong deflationary measures in place. These measures provide a more stable currency that translates appropriately into real-world value.

We are seeing the birth of a whole new economy. Call it Web 3.0, call it DeFi. DeFi creates a path of least resistance to solve the world’s financial troubles.  After a pandemic that sped up the technological literacy of the world, we are at the cusp of the potential of blockchains and DeFi. Beyond Bitcoin, we have seen the enormous growth of DeFi blockchains like Ethereum and Binance Smart Chain. DeFi is proving to be the rising tide that capitalist thinkers like Pinker and Gates triumph. 


The Emerging Networks: ETH, MATIC, SOL, BNB

Ethereum appears primed to maintain its hold atop the DeFi boards. However, it would not be DeFi if newer and more affordable chain innovations were not emerging. Chains like Binance, Solana, and Polygon have entered the scene and caused even more disruption. These protocols bring new dimensions like multi-layer chains, or in Binance’s case: centralized-decentralized finance, or CeFi. These groups may be changing the game once again. Solana boasts transaction blocks that can handle up to 60,000 Transactions Per Second (TPS). Currently Ethereum can only handle 30 TPS. The massive lead in market capitalization that Ethereum still maintains over these chains indicates that DeFi is on the cusp of an explosion.


DeFi is Truly Equal

While all this is digital, we must remember that these new communities are replacing layers and layers of bureaucracy. We are on the verge of a cultural disenthrallment. We will liberate ourselves from the antiquated mode of thinking. There is even more to be said of the creative renaissance potentially at birth with crypto. Unique digital art assets like Non-Fungible Tokens (NFTs) are being pursued by enormous celebrity figures. We also have not even begun to debunk the ecological myths surrounding blockchain and crypto. 

Abraham Lincoln famously held a similar tone in front of the US Congress in 1862

Lincoln said, ‘The dogmas of the quiet past are inadequate for the striving present, the occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we need to think anew and act anew. We must disenthrall ourselves and then we can save our country.’

DeFi can start to help mitigate much of the world’s problems. The vast inequality of the world is not a force of nature-- equality is.  It’s almost like Lincoln was speaking about DeFi in 2021. Thankfully, you have BSC.News to make the connection for you. 

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Kyle Heise

Born and raised in the East Bay of California. He has studied and worked on three continents and lived in eight countries. Kyle resides in San Francisco. He holds bags mostly in Ethererum, Cake, and BSC GameFi projects.

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