DeFi

Decentralized finance (commonly referred to as DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum. DeFi is providing technology to create efficient money. Through DeFi’s distributed ledger technology and its features of transparency, immutability and scalability, companies that can turn inefficient to efficient money are identified. Investing in these companies is easier through DeFi. DeFi tokens are another milestone in making investing and commerce opportunities accessible to individuals that may not have been able to participate up to this point, pioneering an economic paradigm shift. DeFi projects are software protocols running on top of a blockchain network such as Ethereum or Cosmos. These projects leverage the underlying protocol technology as well as new improvements to automate financial services. DeFi favors network effects, the true innovation is created by uniquely combining the applications. While it may be difficult to determine which blockchain protocols and applications will get the most usage long-term, currently the advanced decentralization, programmatic flexibility and the truly enthusiastic developer base gives Ethereum the lead. For Ethereum, going forward, the fate of adoption of DeFi is tied to the scalability and usability of Ethereum. DeFi has yet to prove it is a true improvement. Currently, the usability is unintuitive, risk-adjusted pricing is non-existent and the liquidity cannot compete with the centralized alternatives. Nevertheless, we are bullish that these are issues of a nascent ecosystem.