Bitcoin
BTC$61 243.77

1.02%

Ethereum
ETH$4 109.03

4.38%

Binance Coin
BNB$481.29

0.25%

Cardano
ADA$2.15

0.11%

Tether
USDT$1.000556

0.09%

Solana
SOL$195.86

-3.60%

Why DeFi could rebuild trust in financial services


05 Apr 2021

#DFI.Money

While legacy finance is losing the people’s trust, decentralized finance is becoming the fair and deserved future of money. To function effectively, society has long depended on people having faith in their institutions. Thanks to the COVID-19 pandemic and wide-ranging failures of leadership, that faith has been tested like never before.

Nowhere is the decline in trust more evident than in the financial services sector. In its 2021 Trust Barometer, Edelman found that only 53% of American respondents said they trusted those in the U.S. to "do what is right" — down 5% from its 2020 survey. You can see this in the battle between Main Street and Wall Street, which played out in January’s GameStop rally. More than just another “short squeeze,” the rally highlighted the fact that many younger investors simply don’t believe in financial institutions.

Trending away from institutional authority is also evident in the explosive growth of decentralized finance, or DeFi. By using decentralized applications on the blockchain, DeFi allows individuals to lend or borrow funds, trade coins and earn interest on savings. Their transactions are governed by smart contracts, embedded in the software; no bank, brokerage or exchange is required.

With a digital-first generation, DeFi will become the default

To illustrate how fast DeFi has taken off, examine the total value locked, or TVL, being poured into the DeFi sector. TVL is the best way of charting the success of DeFi, as smart contracts usually require a counterparty to post collateral for any transaction. As of mid-March, almost $59 billion was locked into DeFi. A year earlier, that figure stood at around $500 million.

The overall crypto market — driven by Bitcoin (BTC) — is now worth well over $1 trillion, so there’s a long way to go before DeFi becomes headline news. Though remember: It took Bitcoin nearly 10 years before institutional investors really started to buy in — and it seems that it will take half that time for DeFi to achieve similar penetration.

Why? Because younger investors — like the GameStop traders — understand the concept of digital scarcity, embracing the fact that non-physical assets have value. That’s why they’re buying up nonfungible tokens as a way to trade digital properties. The best-known example of the NFT phenomenon was the Christie’s auction in March of a digital collage by artist Beeple — purchased for almost $70 million using cryptocurrency.

What has been a trickle of crypto activity promises to become a torrent, once the bulk of Baby Boomers retire. The epochal event, now underway, represents one of the greatest transfers of wealth ever. According to “Big Four” audit firm PwC, an estimated $59 trillion in wealth will move from retiring Boomers to their digital-native beneficiaries by 2061.

It is this new generation that will be looking for ways to invest their inheritance — and choosing the systems and platforms in which to place their trust. Given the choice, Millennials and Gen Zs will always choose the investment option that’s cheaper, more accessible and available 24/7.

As DeFi takes off, expect legacy institutions to fight back

Of course, banks being banks, you can expect to see them — along with other legacy institutions — fighting hard to defend their turf. They know that to remain competitive, they’ll need to increase service hours, decrease settlement times and boost user functionality.

Already they’re starting to integrate smart contracts and other DeFi technologies into existing platforms — both to increase efficacy and to keep up with market demand for more transparency and customer privacy. In a February white paper, released by the Depository Trust & Clearing Corporation, the DTCC proposed shortening the settlement cycle for U.S. equities from two business days to one.

Even then, the planned implementation of the DTCC plan could take two years — and still lag behind the instantaneousness of crypto. In a world that’s moving rapidly toward a 24/7 model, security issuers that stick to industry laggards will soon be left behind.

The path ahead is promising - but not without its bumps

While the technology for DeFi is advancing quickly, it will take time for the capabilities to get where they need to be for broad-scale adoption. The network fees required to trade on decentralized trading exchanges such as Uniswap are still high (though that’s expected to come down over time).

There’s no denying the potential of being able to buy or trade digital assets 24 hours a day, with immediate delivery, or to borrow on a peer-to-peer level — and dictate your own terms.

There are still some 1.7 billion people who are considered “unbanked” — and DeFi holds the promise of offering any individual with an internet connection and mobile phone a full array of banking services.


Related

DeFi adoption on the Binance Smart Chain reaches new highs
DeFi adoption on the Binance Smart Chain reaches new highs
Developer-focused DeFi aggregator Instadapp launches governance token
Developer-focused DeFi aggregator Instadapp launches governance token
DeFi needs regulatory clarity to interface with real-world finance
DeFi needs regulatory clarity to interface with real-world finance
Next Step for Institutional DeFi? Institutional NFTs
Next Step for Institutional DeFi? Institutional NFTs
Top 3 DeFi lending protocols exceed $20B in deposits
Top 3 DeFi lending protocols exceed $20B in deposits
DeFi boom drives 1200% increase in DApp volume in 2020
DeFi boom drives 1200% increase in DApp volume in 2020
How does DeFi reach mass adoption?
How does DeFi reach mass adoption?
DeFi is here to stay despite signs of a bubble
DeFi is here to stay despite signs of a bubble
BlingSwap: DeFi is quickly growing up
BlingSwap: DeFi is quickly growing up

Top Cryptocurrencies with Price Predictions

# Crypto Prediction Accuracy CVIX Price 24h 7d Market Cap 7d price change
1 Bitcoin (BTC) BTC Bitcoin predictions 66% 76 $61 243.77 1.02% 1.11% $1 154 572 840 442 BTC 7 days price change
2 Ethereum (ETH) ETH Ethereum predictions 73.2% 57 $4 109.03 4.38% 6.19% $485 054 173 428 ETH 7 days price change
3 Binance Coin (BNB) BNB Binance Coin predictions 71.6% 60 $481.29 0.25% 3.23% $80 279 625 910 BNB 7 days price change
4 Cardano (ADA) ADA Cardano predictions 92% 12 $2.15 0.11% -1.89% $70 787 881 107 ADA 7 days price change
5 Tether (USDT) USDT Tether predictions 91.6% 1 $1.000556 0.09% 0.06% $69 612 761 722 USDT 7 days price change
6 Solana (SOL) SOL Solana predictions 74.4% 54 $195.86 -3.60% 23.35% $58 918 167 005 SOL 7 days price change
7 XRP (XRP) XRP XRP predictions 76% 52 $1.088407 0.20% -5.19% $51 096 748 647 XRP 7 days price change
8 Polkadot (DOT) DOT Polkadot predictions 62.4% 79 $43.63 -0.29% 3.79% $43 086 190 756 DOT 7 days price change
9 Dogecoin (DOGE) DOGE Dogecoin predictions 70% 56 $0.250784 5.45% 5.27% $33 056 889 048 DOGE 7 days price change
10 USD Coin (USDC) USDC USD Coin predictions 92% 1 $1.000865 0.09% 0.09% $32 551 622 838 USDC 7 days price change
11 Terra (LUNA) LUNA Terra predictions 66.8% 65 $42.68 -0.63% 15.43% $17 137 911 904 LUNA 7 days price change
12 UniSwap (UNI) UNI UniSwap predictions 73.6% 48 $26.59 3.60% -2.02% $16 261 823 078 UNI 7 days price change
13 Avalanche (AVAX) AVAX Avalanche predictions 69.2% 65 $65.13 -0.86% 8.98% $14 346 523 240 AVAX 7 days price change
14 Chainlink (LINK) LINK Chainlink predictions 76.4% 47 $30.61 7.77% 9.88% $14 113 775 739 LINK 7 days price change
15 Wrapped Bitcoin (WBTC) WBTC Wrapped Bitcoin predictions 64% 75 $61 285.05 0.88% 1.17% $13 592 575 892 WBTC 7 days price change

Be the first to receive Cryptocurrency Price Predictions and Forecasts daily

Get cryptocurrency price predictions, forecasts with analysis and news right to your inbox.

© 2015-2021 Crypto-Rating.com

The usage of this website constitutes acceptance of the following legal information. Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website, including information about the cryptocurrencies and bitcoin is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Crypto Rating shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about cryptocurrencies. The entire responsibility for the contents rests with the authors. Reprint of the materials is available only with the permission of the editorial staff.