If you’ve been paying any attention to the crypto/blockchain industry over the past several months, you’ve likely heard of DeFi (Decentralized Finance), aka, “Money Legos.”
As an economic force, DeFi is experiencing exponential growth. Over $2 billion in Ethereum and Bitcoin are now sloshing around in various DeFi protocols. Just last month, nearly half of that was added. DeFi platforms collectively are paying out roughly $25 million per month to participating users.
The majority of DeFi assets and protocols have been created just within the past six months.
So what exactly is DeFi? Why do we need it, and why is it growing so fast?
Mechanically, DeFi is an ecosystem built primarily on the Ethereum blockchain that uses Smart Contracts or dapps (decentralized apps) to recreate many of the existing financial services and products that we
use habitually. The services that are or will be DeFi’d consist of lending, investing, derivatives, exchanges, borrowing, saving, crowdfunding, and insurance.
Instead of using traditional fiat currency, DeFi uses cryptocurrency, and If that were all there was to it, DeFi wouldn’t be very interesting.
What makes DeFi unique?
In a word…Decentralization. DeFi protocols are not monolithic corporate institutions with gatekeepers, vested interests, and barriers to entry. Anyone with Ethereum or Bitcoin in a digital wallet can use any DeFi protocol smart contract globally and 24/7.
Moreover, anyone with experience coding smart contracts can contribute to any DeFi project or build a new product. For example, a DeFi product created by one person called “Curve” and has processed over $200 million in just four months.
Programmable: The immutability afforded by the cryptographic protocols that exist on the Ethereum blockchain act as a universal settlement layer.
There’s no need for a third party to oversee a transaction. Banks, brokers, auditors, managers, and more become obsolete associated costs and barriers.
Smart Contract code is publicly viewable on the Ethereum blockchain. Transactions are performed by code, not by people, resulting in immediate rendering of services at a much lower cost than traditional finance.
Transparent/Permissionless: DeFi has no gatekeepers and zero restrictions. All the code and every transaction is easily auditable on etherscan.io
Borderless/Non-Custodial: The verifiably secure cryptographic protocols afforded by blockchain technology ensure that transactions are tamper-proof, mitigating counterparty risk. This negates the need for KYC and AML.
Anyone in the world can access a DeFi product or service anytime with just an internet connection, smartphone, and Ethereum wallet.
Interoperable: Because of the lion’s share of DeFi protocols built on a standard application framework (Ethereum), different applications can be stacked and customized in various ways, which is why DeFi relates to “Money Legos.”
How DeFi Compares to Non-Crypto Finance
The DeFi Universe
DeFi’s expansion beyond Ethereum
The majority of DeFi products and services are built on the Ethereum blockchain and use its native currency Ether for transactions. DeFi is a killer app, and other blockchains are beginning to dovetail innovation efforts toward this new center of gravity in crypto.
One such project is Tezos. The Tezos blockchain is similar to Ethereum because it is programmable, and developers can also create DeFi centric dapps on top of it. It is unique in that it uses Proof-of-Stake successfully, can be programmed in multiple languages, and has incredibly fast transaction speeds compared to Ethereum and Bitcoin.
The Tezos DeFi initiatives include the creation of a tokenized version of Bitcoin, tzBTC. The brand and liquidity of Bitcoin, available on a fast, smart-contract enabled blockchain, opens up a myriad of DeFi possibilities.
Tezos recently announced a partnership with DealBox and Vertalo for the issuance of 22 security tokens valued at over $200M.
DealBox is gaining attention lately with it’s feature-rich, security token issuance and investment platform.
As an early pioneer where Fintech overlaps blockchain technology DealBox has demonstrated an uncanny knack for being ahead of the curve on emerging technology, as shown by strategic pivots from utilizing the Ethereum blockchain, to Stellar Lumens (XLM), to finally its launch on the Tezos blockchain.
CEO of DealBox and digital securities founding father, Thomas Carter had this to say about the recent initiatives:
“With the imminent launching of the platform, DealBox will have cornered the nascent digital securities market on giving issuers and investors a savvy approach to being first-in-line to invest in innovative new companies using digital securities issuance technologies.“
Fintech UI + Decentralized Settlement Layer = Game Over for Traditional Finance
The promise of true financial democratization and greater access has yet to be realized by Fintech. While plenty of adopted mobile apps focus on sending payments and investing in stocks, Fintech has not changed the underlying centralized financial institutions that have built new UI’s around. The bureaucracy, barriers, and constraints still exist.
In the same way that the internet disrupted music, retail, learning, and other industries by decreasing distribution costs and removing barriers to access, DeFi being the internet of money will also disrupt the finance market.
By dramatically decreasing the distribution costs and providing a permissionless, censorship-resistant, and global decentralized settlement layer for near-instantaneous financial services, DeFi has rebuilt the legacy financial system into something that resembles a true democracy.By making it interoperable and available for everyone to build atop, and customize without autocratic overseers seeking to tip the scales in their favor, the DeFi ecosystem is unlimited in it’s potential to innovate. And create entirely new ways of creating value that is impossible for traditional finance to duplicate.
The “BUILDLR’s” of DeFi need only remove the abstraction and make their novel value machines easy to use as PayPal, Cashapp, and Venmo. Once that happens – everything changes.
Advice for bankers: Learn to code.
DealBox, Inc. is a specialty capital markets consulting firm focusing on both traditional and digital securities industries that utilize blockchain-based technologies as it relates to capital formation for entrepreneurs and early to middle stage companies. DealBox has strong competencies and expertise in select, high growth industries with a robust capital advisory bench and know-how, as well as commitment to thoroughly vetting company offerings over a multi-week/month iterative process recommending the structure most appropriate for your business. When you or your business works with
DealBox, Inc., you can expect one of the most comprehensive investment packaging services and offering construction processes available in the capital formation business today. We have found that entrepreneurs are great at creating quality products and services, but what they need help with is turning their business into a consumable product that is required to market their offering to raise capital effectively. DealBox Inc. is here to solve this problem and liberate entrepreneurs from the inefficiencies and complexities of presenting your company to potential investors.
– Thomas Carter
–ThomasCarter, founder and CEO of DealBox; read about Thomas: “ThisFinTech Veteran Is Making Cryptocurrency Startup Funding Legitimate“;connect with Thomas on LinkedIn and Instagram