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Decentralized finance could be a bubble, but it's even beneficial for cryptoeconomics

Oct 13, 2020 | News
Decentralized finance could be a bubble, but it's even beneficial for cryptoeconomics

According to the developers, DeFi can solve the problem of easy and ubiquitous access to finance. But is it real?

Yes, DeFi is а way to replace most Wall Street services and an army of corporate lawyers with 800 lines of smart contract code.

Yes, decentralization means no intermediaries. That, despite a rather crude and not always user-friendly interface, has already led to the fact that billions of dollars pass through this financial ecosystem every day.

And yes, despite the fact that we are actually at the beginning of a classic bubble (if it is a real bubble, of course), many DeFi tokens already have a capitalization comparable to Bitcoin's capitalisation. Although some of them are nothing more than a big name, a few lines of code and a smart marketing solution. Moreover, they already have their own "sequels" and "derivatives", which also have value. So it's not just that the situation is compared to the famous Bitcoin bubble of 2017.

But can all this be used for good? Experts believe so. The point is that anything that can be tokenized, can end up in some DeFi app. And moreover, it really becomes a part of DeFi apps. New and rather promising projects appear practically every day. Almost like the dot-com boom.

But DeFi's main use is in financial services. That means online payments, money transfers, accumulation of finance, trade, loans and much more. Everyone benefits from this, but most of all - residents of developing countries in Africa and Asia. And that's why.

Imagine a world without financial barriers. Different currencies are quickly exchanged for each other without any problems and commissions. Everyone can transfer money to everyone. Alas, in reality everything is somewhat worse. About 40 percent of formal financial institutions and banks in developing countries do not meet KYC (user identification) requirements, so organizations from developed countries are in no hurry to interact with them. Not to mention the fact that some residents of third world countries have huge problems with documents. In general, about 1.7 billion people do not have access to traditional financial services. But for DeFi, none of this matters.

If Bitcoin is the first level of network development, then decentralized finance is the second. There is also a third - decentralized P2P networks. And all of them can really solve the problem of access to finance for the entire population of our planet.

In addition, full decentralization provides us with another advantage - adequate market prices. At the current level, alas, there are still some problems with this, since even decentralized exchanges are forced to turn to the "oracles" of centralized financial organizations for pricing issues. It's different on decentralized P2P sites. Users decide for themselves whether this or that currency is worth their money or not. This is especially useful for hyperinflationary countries where centralized regulators are no longer up to the task. Instead, a decentralized auction will determine the price of the asset. Some believe that this pricing principle could become the new standard and change the current distribution of geopolitical power.

However, it is worth remembering that active growth is always followed by a decline - a bearish trend. This is especially true for bubbles and situations similar to them. It is extremely difficult to guess or predict this moment. Just remember that even if DeFi declines, you can always go back to regular cryptocurrencies. Bitcoin and Ethereum will stand up even with this development, since they already have real use and real value.

And yes, you can lose money. Considering the high volatility of DeFi and crypto, this is normal. But where you lose, someone else will gain, so the market in total will become more stable and predictable. This is also a natural process that began with bitcoins. And it is far from certain that the formation of a global decentralized financial market will end on DeFi.

Published on the EXBASE.IO based on materials from cointelegraph.com