Do Web3 and DeFi have any chance to be the future of finance?
Over the last 3 years, DeFi has innovated more than traditional banking has innovated in 30 years. On top of that, crypto adoption has been growing faster than internet adoption in the 90’s. This can give us some clues, but that’s not all. In this article, I want to give you a clearer view of the future of finance, and we all should be ready for it!
In this article, I will lay down 5 fundamental reasons why DeFi is an explosive revolution and why the DeFi Summer 2.0 will happen.
Developers are building all the financial products that exist, from scratch, on the 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 of a financial institution.
The financial institutions of the future are Smart Contracts on the blockchain, not this guy:
Nothing inherently wrong with banks. They helped to advance the economy since the Medici invented banking 700 years ago in Italy. It’s just that we now have a much better, faster and cheaper way of doing things without the need for Mr. Monopoly.
DeFi is a totally new paradigm that encompasses efficient and sound capital allocation to sustainable finance projects by matching savers, traders, borrowers and investors.
So here are 5 reasons why I think DeFi is disrupting finance and DeFi will have a significant share of the financial industry:
Crypto adoption is growing at a very fast rate and platforms with very large user bases are implementing crypto infrastructure:
- There are over 300 million crypto users online that already have a wallet to interact with DeFi applications
- Instagram, Twitter, Reddit, and other big players have rolled out their crypto wallets/applications to their large user base
- DeFi user growth was 44% QoQ in 2022 (bear market), surpassing 5 million users
DeFi provides a fast track for innovation across EVERY financial product:
- DeFi is not a new asset. DeFi is ALL asset classes. We currently have lending, bonds, asset management, DEX, insurance, options, and derivatives, all in DeFi!
- DeFi is highly innovative and DeFi applications, rather than competing with each other (like traditional finance), end up cooperating thanks to DeFi composability.
- Composability (money legos) provides incredibly quick development. Everything is open source and transparent, allowing developers to develop on top of each other. This brings hyper-competition/collaboration.
DeFi is the financial market for Web3 and Metaverse:
- As we inevitably transition to Web3, users now have digital assets (a multi-billion dollar industry) that can be traded in DeFi
- The gaming industry has been slowly tokenizing in-game assets as NFTs and there are over 2 billion gamers worldwide. DeFi can unlock the liquidity of those assets.
DeFi is an asymmetric bet:
- The odds of success and the potential multiples on investment are clearly positive (not financial advice; DeFi is also super risky).
- DeFi is Fintech 2.0 on steroids. Its a totally new financial infrastructure being built from scratch. DeFi market capitalization is at the time of the article around $50 billion and the entire financial industry is $2.6 trillion. DeFi is still a drop in the ocean.
DeFi network effects provide an unprecedented level 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 each other.
- DeFi provides the ultimate financial inclusion. All people need is an internet connection to have access to a plethora of financial services. DeFi is global, borderless, and doesn’t discriminate or censor.
A number of technologies are converging together and evolving in the direction of automating finance between them through DeFi. DeFi is truly at the center as the financial infrastructure of the future.
In a not so far future, machines and applications will be able to communicate with each other using their blockchain ID and process DeFi transactions between them.
DAOs will own fleets of self-driving cars that will automate payments via smart contracts. Cars will be able to pay and auto-charge, and charging stations will be able to deposit lend their revenue automatically into a DeFi lending protocol like Aave to generate yield. DeFi will bring us extreme capital efficiency. A multi-billion dollar market accessible to anyone/anything with an internet connection. The future.
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