It’s what DeFi people jokingly call traditional finance.Ĭlever. You want a crypto coin that behaves like a boring, stable dollar, which you can use without needing to interact at all with the TradFi system. Stablecoins are a critical part of DeFi markets, because if you’re a crypto investor, you don’t want to constantly be changing tokens back and forth to dollars, or keeping all your assets in cryptocurrencies whose values might fluctuate wildly. Stablecoins are cryptocurrencies whose value is pegged to the value of a government-backed currency, like the U.S. The best example is probably stablecoins. In short, because DeFi is mostly unregulated, with few of the consumer protections and safeguards that exist in the traditional financial system.Ĭan you give me an example of something that would be regulated in the traditional financial system, but isn’t regulated in DeFi?
comptroller of the currency, said in a speech at a blockchain conference in September that many DeFi products reminded him of the credit default swaps and other complex derivatives that were popular on Wall Street in the years leading up to the 2008 financial crisis.Īnd Senator Elizabeth Warren, the Massachusetts Democrat, singled out DeFi in a December crypto hearing, calling it “the most dangerous part of the crypto world.” Or you could take a cue from regulators and politicians, who are increasingly looking to DeFi’s growth with concern. You could also look at trading activity on decentralized exchanges, which has grown by triple-digit percentages in the past year. isn’t the only way to measure DeFi’s growth. That would make DeFi something like the 38th largest bank in the United States by deposits, if it were a bank. a standard way of measuring the value of crypto held in DeFi projects - is currently about $77 billion, according to DeFi Pulse.
How big is DeFi?ĭeFi’s total value locked or T.V.L. Wild West Wall Street! OK, now I’m interested.
But DeFi also includes things like lending platforms, prediction markets, options and derivatives.īasically, crypto people are building their own version of Wall Street - one that is largely decentralized and deals exclusively in crypto, with crypto versions of many of the products offered by traditional financial firms, and without much of the red tape and regulations that govern the existing financial system. So DeFi is crypto’s version of a stock exchange? Instead of transacting through banks and stock exchanges, people trade directly with one another, with blockchain-based “smart contracts” doing the work of making markets, settling trades and ensuring that the entire process is fair and trustworthy. In DeFi, those middlemen are replaced by software. And in order to feel comfortable doing the transaction, all parties need to trust that those intermediaries will act fairly and honestly.
To send or receive money in the traditional financial system you need intermediaries, like banks or stock exchanges. What do you mean by “using blockchains to replace traditional intermediaries and trust mechanisms?” It’s an umbrella term for the part of the crypto universe that is geared toward building a new, internet-native financial system, using blockchains to replace traditional intermediaries and trust mechanisms. DeFi (pronounced dee-fye) is short for decentralized finance.
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