As I became serious about digging into blockchain / distributed systems and crypto economy, decentralized finance had become a trending topic and blockchain enthusiasts are excited about the products launched via numerous platforms.
But how exactly is DeFi going to propose a more open, democratic and fair model from the one proposed by the banks (change banks by early crypto adopters)? And how is it going to be implemented in a real system?
I started stating it in this series of articles, it could be ignited with the Avalanche platform (Albeit dependant on the success of its launch). As it has scaling and decentralized properties that other platforms lack, Avalanche will be able to power the use cases for DeFi more efficiently than other platforms.
But for the moment, I see DeFi as only a niche market for people who have already invested in crypto and want to keep increasing their gains (by lending others their assets for interest), or using their assets as collateral for Fiat, or trading via Decentralized Exchanges (and thus gaining some freedom vs centralized platforms).
For sure there is great potential for these applications. But these are not the ones which will bring worldwide adoption.For sure there is great potential for these applications. But there is still issues to bring worldwide adoption.
As explained in this thorough article on DeFi :
While DeFi is referred to as “open finance” and is sometimes touted as a way to “bank the unbanked,” the truth of the matter is these products aren’t aimed at the mass retail investor, let alone the global “unbanked.”
Most importantly, there are practical challenges for DeFi to overcome :
- Identity and Reputation
- Capital efficiency
- Reliable Oracles
- Network : Liquidity, Platform and Scale
- Well defined business models, new risks and regulations
The value proposition of Avalanche from a technology stand point tackles the first 4 challenges.
It’s going to get really exciting when the bridge to mature business models and real world applications becomes seamless. It will open up infinite possibilities. Think about asking for a credit to buy a house via a distributed system, or for a car, or student loan or any other concrete project. And think the same for insurance, savings or any other financial product…
The Avalanche community and developpers understand it, this is why we are excited about the news of the NFTs being natively implemented in Avalanche. And the first Partnership even before the launch. They will enable the digitalization of new types of assets and thus the notion of collateral may be extended for new users and projects. Opening up DeFi for the masses.
Now may be this is idealistic, but once it happens I see only one hurdle remaining for a revolution of usages : Worldwide Legal systems will need to start enforcing these new types of properties. Thus providing coverage and guarantees for all parties.
Because Avalanche is built to allow for infinite customized applications, it may offer all countries a way to both keep their sovereignty and access this shared ressource. Once they adopt it, there is nothing stopping everyone from doing the same. It will be a struggle, it will necessitate Lobbying, diplomacy, show of good faith by all communities… But it will eventually become a reality.