“Decentralized finance” is attracting experts as the next big development after the bitcoin trusted trading platform (BTC) and Ethereum (ETH). What is the reason behind this? Here if we look at the basis of decentralized finance, or “Defi” for short, the more complex financial services such as secondary trading, insurance, lending, or without financial intermediaries to organize and manage portfolios decentralized, more efficiently, and cheaper.
Using blockchain to enable come up with the idea of financial services. But isn’t “complexity” also involved in enabling more complex financial services such as stock exchanges or lending without intermediaries to be able to do that? Importantly, there are currently several major crypto exchanges and wallets such as Coinbase and MetaMask, where you can easily trade crypto, mainly through central intermediaries.
Advent of bitcoin
No one around the world could have imagined, before the invention of bitcoin, that the transfer of digital money and securities would be possible without any banks. As of today, the transfer of crypto or security tokens without intermediaries has already become a part of everyday life in some circles for most people. The number of Defi apps is also increasing steadily.
Defi exchanges, such as Curve Finance, Uniswap, Sushiswap, or Sushiswap, have been around for many years. These process billions of dollars in transactions per week today and are capable of providing exchange functionality without any central intermediaries. And the most important decentralized exchange is also working strongly in today’s time. Even with the ultimate fluctuation of the digital market, the exchanges are fully protected.
Size Diversity of Financial Services
Upon closer inspection, it turns out that exchanges can be managed without human intervention through the use of decentralized protocols. Even the central stock exchanges, which use computer-aided systems and regulations, are predominantly present.
In this sense, DEX has been a constant expansion of the developments of the past decades. However, it can be expected that this development towards Defi applications can continue from a functional perspective and a greater diversity of financial services may emerge in the coming times.
Regulatory Perspective
As of now, pecuniary market guideline is totally founded on the oversight of pecuniary mediators. Yet, what happens when there is no mediator? Who else can be the advocate of regulation? Although, an illustration of this kind of issue is found in the space of to anti-money avoidance, which today, is basically founded altogether on the contribution of brokers.
A couple of years prior, a proposition by the Monetary Activity Team to make practically all product engineers liable for forestalling tax evasion and grouping them as monetary mediators in decentralized structures prompted a displeasure from the private sector.
Development in growth
The development of DeFi has been playing an important role in fuelling a trend that has been noticed for several years: On the other hand, when it comes to digitization, it is capable of enabling new financial market applications, which were not taken into account while making the law.
In a broader sense, these fintech apps turn out to be a heavy reading against applicable laws. There are also several projects which are not in practice as envisaged under the financial market laws. As a result, the need for proper interpretation of laws has been growing in recent years for financial market authorities.
Unnecessary Cost
For DeFi, the application of an “outdated” regulatory system means that none of the risks are adequately addressed. Moreover, at present, regulation is not only considered necessary but is also due to middlemen. On the other hand, if we talk about an intermediary-free system, then it can be completely free from these parts of regulation. So, whenever regulation forces the use of intermediaries that are not needed, it can potentially lead to unnecessary costs.
