DeFi to disrupt the current financial system

Decentralized finance (DeFi) has become a billion-dollar crypto industry, causing a wave of global disruption in financial markets. The benefits of this open, flexible, fast, and transparent ecosystem is describing by Dr. Donald Basile, the CEO of Roman DBDR and Monsoon Blockchain Corporation.

Born by the evolution of the crypto space, the DeFi movement is driven by the vision of a financial ecosystem that – unlike traditional centralized banks – is controlled by the users themselves. That makes this next-generation ecosystem open, flexible, fast, and transparent.

By Dr. Basile, this model allows anyone across the world to access a whole set of financial applications without requiring an intermediary. Created in 2016, the DeFi concept only in 2021 has been co-opted by a diverse community, from professional speculators to institutional investors. Close to $50 billion has been poured into different DeFi protocols this year.

Dr. Basile says everyone is jumping on the DeFi bandwagon because it is a sustainable alternative. While traditional finance is outdated and needs to change the way it identifies individuals, reduces the cost of transactions, and appeals to new markets. But these changes may not come through anytime soon.

As the world explores better opportunities, Dr. Basile sees DeFi as a viable alternative. It enables borrowing, lending, depositing funds into a savings account, and trading complex financial products – all in a permissionless manner. Take, for example, Compound, a DeFi protocol that allows users to take out loans at low-interest rates, as well as earn interest on the funds lent to its liquidity pools. Subsequently, many DeFi platforms have come up lately, which caused the value of assets in DeFi to surge, Dr. Basile said.

Due to easy access, Dr. Basile said, DeFi is becoming a sought-after solution for emerging economies with limited access to traditional finance by offering banking services to the unbanked or hard-to-bank. One more benefit Dr. Basile sees DeFi offers access to credit, exchange, and investment opportunities to everyone, independent of the jurisdiction. 

Aside from providing an alternative to the outdated financial system, Dr. Basile called DeFi a permissionless environment where users are in control of their finances. In addition, he listed DeFi benefits, such as:

• Time and cost efficient: DeFi removes the middlemen from key financial activities, thereby making transactions much more affordable. For example, transferring a million dollars in Bitcoin costs only about $24. A similar transfer through banks would take hundreds of dollars and several days.
• Decentralized: Unlike traditional banks, DeFi isn’t controlled by a single entity. All transactions are recorded across participating nodes, which verify each transaction.
• Quick and permissionless operations: In traditional banks, taking a loan could take months due to complex verification processes. Today, a user can take out a loan with just one click. However, DeFi is still to address the over-collateralization concerns.

Dr. Basile suggests no one can predict DeFi’s future as it’s evolving rapidly. Developers are exploring new services, business models, and combinations of different DeFi protocols. Tools are being built to simplify the user experience. Services are moving to decentralized governance of protocols.

But the CEO of Roman DBDR is positive: as the space matures and more development takes place, we can see DeFi involving the composition of decentralized applications (dApps) and financial primitives as “money legos.” However, he sees that creating new financial instruments and DeFi composability might also bring new risks, such as impermanent loss, flash loan attacks, and rug pulls. Furthermore, the DeFi space is unregulated, which makes it prone to hacks and scams.

Nonetheless, Dr. Donald Basile suggests DeFi can turn out very rewarding, with low-interest rates, high returns, near-zero transactions, and much more. It just requires the right regulations and understanding of risks.