Great article here from Livewire Markets (DeFi – The Future of Finance) where Mike Young, an Investment Analyst at Mason Stevens breaks down DeFi and how it will shape the future of finance. Livewire Markets is market research platform where various analysts and experts share their views and opinions typically on traditional financial assets like equities, ETFs, fixed income and economics. So, it was great to see this article out last month talking about DeFi where hopefully, those who are looking to bridge the gap between this and traditional finance can find this helpful.
First up, it looks at an example of the differences between DeFi and traditional finance in how things like the rates to borrow money or lend money are different when in a decentralised versus centralised model.
Additionally, he highlights how the risk that is seemingly inherent with new systems is different here as decentralised protocols offer no counterparty risk. Whilst there are other risks at play here (bugs in smart contracts or impermanent loss).
The rest of the article highlights other financial services that can be decentralised such as derivatives markets or borrowing/lending, payments, insurance and more. An example given is with Synthetix which enables users to create and trade synthetic tokens which match real world asset prices.
The last section talks about the benefits of DeFi in promoting transparency, efficiency and equality in financial markets but the risk in terms of what regulation could do to stymy those advancements.