DeFi is starting to make some serious noise. So much so, that major banks are now paying attention and feeling the heat. In this conversation, we unveil some of the latest developments, new options for savers as well as some of the risks involved.
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Decentralized finance—DeFi—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by the Ethereum blockchain. The replacement of financial intermediaries with automated digital contracts, is a big deal today with around $76 billion in assets locked up on Ethereum alone. From stablecoins, to lending and borrowing, to prediction markets, margin trading, payments, or insurance, the DeFi ecosystem is growing at an incredible pace.
A paper released by Netherlands based ING Bank last month titled “Lessons Learned from Decentralised Finance,” carefully weighs some of DeFi’s pros and cons. ING blockchain lead Herve Francois recently pointed out that “DeFi could be more disruptive than Bitcoin to the financial sector,” adding that the crypto-friendly Dutch lender has the ecosystem in its sights.
According to Coindesk, “there are at least 2 million wallets that have interacted with DeFi protocols. So that probably means something like more than a million individuals, maybe even close to two? It’s very hard to say, but it is also worth noting that sometimes individuals participate in DeFi via third parties. So while some users hold many wallets, it’s also true that some wallets represent many users.”
The site Crypto Fees has been tracking usage fees charged on different DeFi applications. The top DeFi applications it lists (Uniswap, AAVE, SushiSwap and Compound) show a seven-day average of daily fees collected ranging from $1 million to more than $4 million.
If there’s one kind of finance that everyone understands, it is borrowing and lending. While traditional financial institutions are offering close to zero yield for your savings, DeFi represents a much more credible narrative with more substantive businesses because it shows products with genuine returns and provides a way for people to earn impressive yields on deposits rather than losing the value of their money due to inflation.
But as all things investing, there are also associated risks that every investor should know about. So, be extremely thorough and careful and only invest in DeFi after completely assessing all potential risks.
Finally, on a lighter note, we chat about the Phoenix Suns making the play-offs for the first time in ten years! Not only that, but as of this recording, the Suns have the best record in the NBA. Take a screen shot of that and mint it! 🙂
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