What is decentralised finance?
The concept of decentralised finance, often referred to as ‘DeFi’, is about moving existing components of the traditional financial ecosystem (loans, banking, trading, etc.) onto public blockchains. With people collectively building and controlling a financial system on a public blockchain, it reduces reliance on central authorities (such as governments and banks) and opens up access to financial services.
What does decentralised finance aim to do?
Those who advocate decentralised finance believe it will create a financial system that will achieve two things. One, it will provide access to financial services for the 1.7 billion people that remain unbanked in the world. Two, it will distribute wealth to a much higher proportion of the population.
There’s also a belief it will mitigate key concerns that have plagued financial services. Historically, consumers have lacked control over how corporations handle our investments and how our governments manage the economy. All this has resulted in a lack of transparency over the financial markets, a lack of control and a number of third parties which can mean investors receive smaller returns and are faced with a barrier to entry, in the form of a stringent approval process, when wanting to invest. Because of this, proponents of DeFi believe it’s preferable for the individual to have complete control over their financial assets.
Why should I care about it?
The main reason you should care about DeFi is it enables those who currently don’t have access to financial services to store and transfer money, earn interest and make investments. This could drastically change the livelihoods of people globally.
Who is talking about it?
In 2019, cryptocurrency firms and blockchain companies dominated the conversation around DeFi. However, the start of 2020 saw the term become increasingly used amongst fintechs and it is now slowly beginning to penetrate the language of traditional financial service providers.