Do Web3 and DeFi have a chance to be the future of finance?
In the last 3 years, DeFi has innovated more than traditional banking has done in 30 years. Additionally, crypto adoption grew faster than internet adoption in the 1990s. This can give us some clues, but that’s not all. In this article I want to give you a clearer look at the future of finance and we should all be prepared!
In this article, I will reveal 5 basic reasons why DeFi is an explosive revolution and why DeFi Summer 2.0 will happen.
Developers build all existing financial products from the ground up on top of the blockchain. This is important because for the first time anyone in the world can have access to financial products without the need for a financial institution.
The financial institutions of the future are smart contracts on the blockchain, not this guy:
There is nothing fundamentally wrong with banks. They have helped drive the economy forward since the Medici invented banking in Italy 700 years ago. It’s just that we now have a much better, faster, and cheaper way to get things done without the need for Mr. Monopoly.
DeFi is a whole new paradigm that includes efficient and robust capital allocation for sustainable finance projects by bringing savers, traders, borrowers and investors together.
So here are 5 reasons why I think DeFi is disrupting finance and DeFi will have a significant stake in the finance industry:
Crypto adoption is growing very fast and platforms with very large user bases are implementing crypto infrastructure:
- There are over 300 million crypto users online who already have a wallet to interact with DeFi applications
- Instagram, Twitter, Reddit and other big players have launched their crypto wallets/apps to their large user base
- DeFi user growth was 44% QoQ in 2022 (bear market) and exceeded 5 million users
DeFi provides a fast track for innovation in ANY financial product:
- DeFi is not a new asset. DeFi includes ALL asset classes. We currently have Lending, Bonds, Wealth Management, DEX, Insurance, Options and Derivatives all in DeFi!
- DeFi is highly innovative and, instead of competing with each other (like traditional finance), DeFi applications cooperate thanks to DeFi’s composability.
- Composability (Money Legos) offers incredibly fast development. Everything is open source and transparent, so developers can build on each other. This brings with it hyper-competition/collaboration.
DeFi is the financial market for Web3 and Metaverse:
- As we inevitably move to Web3, users now have digital assets (a multi-billion dollar industry) to trade in DeFi
- The gaming industry has slowly tokenized in-game assets as NFTs, and there are over 2 billion players worldwide. DeFi can unlock the liquidity of these assets.
DeFi is an asymmetric bet:
- The odds of success and potential multiples when investing are clearly positive (no financial advice; DeFi is also super risky).
- DeFi is fintech 2.0 on steroids. It’s a whole new financial infrastructure being built from the ground up. The market cap of DeFi is around $50 billion at the time of writing and the entire financial industry is $2.6 trillion. DeFi is still a drop in the bucket.
DeFi network effects offer unprecedented levels of connectivity and scalability:
- DeFi smart contracts can interact with each other, automate payments, and interact with any tokenized asset.
- All financial products can communicate/pay/collateralize with each other.
- DeFi offers the ultimate in financial inclusion. All people need is an internet connection to access a plethora of financial services. DeFi is global, borderless and does not discriminate or censor.
A number of technologies are converging and evolving towards automating the funding between them through DeFi. DeFi is really taking center stage as the financial infrastructure of the future.
In the not too distant future, machines and applications will be able to communicate with each other via their blockchain ID and handle DeFi transactions between them.
DAOs will own fleets of self-driving cars that automate payments via smart contracts. Cars can pay and charge automatically, and charging stations can automatically deposit and borrow their earnings into a DeFi lending protocol like Aave to generate income. DeFi will bring us extreme capital efficiency. A multi-billion dollar market accessible to anyone with an internet connection. The future.
If you are interested in Blockchain, Crypto, NFTs, Metaverse, Fintech and DeFi, don’t forget to check out my highly rated and super fun courses:
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