The 2008 crisis gave us the first age of crypto.
The current bear market can be the catalyst that propels DeFi into the mainstream.
3 problems DeFi is trying to solve.
The current bear market can be the catalyst that propels DeFi into the mainstream.
3 problems DeFi is trying to solve.
1 - More efficient loans:
Loan mechanisms are controlled by a few banks that set the prices and rules of the market and own the infrastructure.
Now there's an opportunity to decentralize the pricing mechanism.
Loan mechanisms are controlled by a few banks that set the prices and rules of the market and own the infrastructure.
Now there's an opportunity to decentralize the pricing mechanism.
DeFi protocols such as Aave are already doing that.
Free market sets the borrowing rates based on supply and demand.
These protocols rely on infrastructure that works almost as well as the TradFi does.
Free market sets the borrowing rates based on supply and demand.
These protocols rely on infrastructure that works almost as well as the TradFi does.
But the good thing is terms are non-negotiable, even in critical situations.
The first lenders Celsius repaid were Aave and Maker because there was no way to renegotiate the terms of the margin loan.
The first lenders Celsius repaid were Aave and Maker because there was no way to renegotiate the terms of the margin loan.
2 - Grow cash productivity
Example: You own an e-commerce website
If someone purchases a t-shirt over the weekend, you may only get the cash on Tuesday, because TradFi banking rails are slow and don't operate on the weekends.
Example: You own an e-commerce website
If someone purchases a t-shirt over the weekend, you may only get the cash on Tuesday, because TradFi banking rails are slow and don't operate on the weekends.
With stablecoins, you could receive and use the cash 24/7 to repay some loans, vendors, or even invest.
Stablecoins can also be transferred easily and quickly between companies allowing them to essentially share a treasury aka cash pooling.
Stablecoins can also be transferred easily and quickly between companies allowing them to essentially share a treasury aka cash pooling.
3 - Next step of content economy
In Web 2 platforms, users are the product.
People started moving to platforms where they pay creators directly without ads, such as Patreon, Onlyfans, etc.
This is better but still has heavy payment friction.
In Web 2 platforms, users are the product.
People started moving to platforms where they pay creators directly without ads, such as Patreon, Onlyfans, etc.
This is better but still has heavy payment friction.
The next step is to pay as you use, in small/micro amounts.
DeFi is currently working to overcome a few challenges.
DeFi is currently working to overcome a few challenges.
A - DeFi is not built for stressed situations
There's a reason why capital requirements exist.
If a DeFi protocol takes market risk, which very few are built for, it should have a shield for its users.
There's a reason why capital requirements exist.
If a DeFi protocol takes market risk, which very few are built for, it should have a shield for its users.
If DeFi is to offer unsecured loans that are resilient to market downturns, there need to be some rules around capital requirements built into the protocol.
B - DeFi requires a new form of risk management
If DeFi is to offer risk-taking services, protocols have to access the credit worthiness of its users.
That's why lending protocols are over-collateralized.
A system that allows accurate credit scoring in DeFi is fundamental.
If DeFi is to offer risk-taking services, protocols have to access the credit worthiness of its users.
That's why lending protocols are over-collateralized.
A system that allows accurate credit scoring in DeFi is fundamental.
C - Stronger infrastructure need to be built
$4.75B has been lost in DeFi hacks, 11% of TVL.
There need to be more rigorous standards for smart contracts so that DeFi can thrive.
$4.75B has been lost in DeFi hacks, 11% of TVL.
There need to be more rigorous standards for smart contracts so that DeFi can thrive.
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