Programmers have found a way to replace the core service offerings of Wall Street and an army of corporate lawyers with 800 lines of smart contract code.
The “De” in DeFi stands for “decentralized,” meaning there are no intermediaries in the process. Despite the raw and unpolished user interface, billions in assets flow through new decentralized apps every day.
We’re only at the beginning of the growing DeFi bubble and there are already tokens worth more than Bitcoin. Some of these tokens are nothing more than a name, code, and smart marketing. There are shrimp, burger, spaghetti, and sushi tokens that have reached sky highs and many of these meme tokens even have “sequels.” It is madness in excess of the ICO bubble of 2017. While the bubble may only have a few more weeks to go, the technology that powers it will change everything.
For the first time in history, anyone can access advanced financial services and are doing it through:
- One-Click IPO — There are smart contract generators that let you create your own public offerings within seconds. Just choose a name, symbol, total supply, and how much you will get at the start. You can then add this token to a decentralized exchange like UniSwap and others can buy it for Ethereum.
- Lending — You earn interest by providing your capital to a lending pool. Microloans can also be obtained easily to help those in need in the emerging world
- Hedge Funds and Insurance — YFI (Yearn Finance) is an example of a project that innovated fair distribution of tokens. The founders had zero pre-mined tokens, leaving all the money on the table for the community. The community has rewarded us all by building a variety of apps that are on track to becoming an ecosystem. One YFI is worth over $30,000 USD as of now. With only 30,000 YFI tokens in circulation, many expect its value to reach over $70,000. But the question is—is it sound?
- Built-in Market Making — Wall Street uses a tactic called “market making,” which is essentially “insurance” against the stock price collapsing. Crypto coders have replaced this old manual Wall Street service with a few lines of code that allows anyone to become a market maker by staking their tokens in a pool of tokens. The tokens are used by an automated set of trading rules to keep the price from collapsing. As an added bonus, those who stake their tokens in these pools also earn a share of the total fees earned by the decentralized exchange app. These crypto nerds even found a way to let people earn off these market-making services, much like Wall Street did. So, if you stake 10% of the total token pool supply, you earn 10% of all fees earned by the exchange of that token. Truly Genius. This is how Uniswap and SushiSwap work.
- Frictionless onboarding — No ID is required, no phone calls needed, not even a login. You can connect to any of your crypto wallets via the open Wallet Connect protocol and have your funds ready to trade all of the tokens on the Ethereum blockchain. How the trades are matched up can get quite technical as code is used to match prices based on a slippage percentage. The custody is all yours. No one can confiscate your wallet. Better not lose your private keys though. Crypto can be as scary as keeping your life savings on your mobile phone or laptop.
Can it all be bad? Can we use this technology for good?
Anything that can be tokenized can end up on a DeFi application. The pace of development is intense. Every day, new brilliant projects emerge—DeFi could be bigger than the Internet one day. Anything is possible now.
P2P Finance has also been operating silently in the background. It offers financial services to people based on real use cases like payments, remittance, wealth preservation, and commerce. The people of emerging markets like Africa and India, for example, seem to benefit most. All DeFi trades are peer-to-peer in nature as they happen on a blockchain.
Imagine a pure DeFi version of this? The ability to bridge fiat money—like dollars and all the world’s currencies. Why does the world need it? Remember the frictionless onboarding part? It is actually a huge value add-on because over 40% of the emerging world that we serve cannot provide proper KYC services, as localized KYC solutions are not well integrated or developed. Furthermore, many people have no ID at all and that is another opportunity.
There are four billion human beings who lack access to traditional financial services. If Bitcoin was layer one, then DeFi is layer two and the “people” layer provided by P2P networks like Paxful is the third layer. This decentralized, people-powered marketplace for money transfers just needs the frictionless onboarding decentralization brings.
The other huge benefit is the potential for decentralized price discovery. The current decentralized exchanges cannot do this, as they use a price “oracle” from centralized exchanges. However, decentralized people-powered marketplaces could offer a price based on P2P crypto to fiat trades. This can give us the true street price of Bitcoin to the dollar—which is something that would be of enormous value to people in hyperinflationary economies like Zimbabwe or Venezuela, as people there often have to check many different sources. Additional price discovery models can be built on top of auction model exchange rules. There is a hidden world-changing product to be found here; price discovery of this nature would become the new standard and potentially tip the scales of geopolitical power.
What about you? What should you do about DeFi?
Remember that we’re in a bubble but when it bursts the next Bitcoin bull run will begin so prepare yourself. As the world plunges into chaos just remember that “it’s good to be into crypto,” as crypto is the hedge against the world of finance falling apart. Bitcoin and Ethereum are rock solid because they now serve real use cases. DeFi tokens are literally playing with fire and you might get burned. Those who win this game buy, hold, and check the price constantly. Bitcoin will always be the spine of the crypto economy and it will grow. Be bullish.
Farm. This just means you hold a token and get paid out of the fees coming from the service. Every variety of token is available from decentralized Yams to semi-decentralized Burgers and more. To begin, just buy $10 worth of Ethereum or Bitcoin and put it into one of these services. A fair warning: the network is congested and the fees have skyrocketed, so just sending a transaction of even $1 can cost you over $20. Admittedly, DeFi is still raw. It can be complex to start but many offerings are emerging to simplify the complexities of DeFi. Keep in mind the farming profitability of most of these tokens will most likely collapse with the price.
To my fellow nerdy geniuses: build a mastermind group, learn as much as you can, and move together. We’re in the middle of the greatest wealth transfer in human history. Don’t miss it. Start learning and building.
This is the way.