The Future Of Finance: Decentralized
We are seeing a lot of carnage arising out of the bear market. Many firms are going belly up as the ramifications of falling prices are creating defaults. The unwinding taking place is putting companies in an illiquid situation, something that is echoing throughout the industry.
According to Finbold, 25 exchanges went under in 30 days.
It is evident that centralized entities in the cryptocurrency industry are in jeopardy. Now we are seeing the result of this.
We often discussed the idea of decentralization. It is becoming evident how it is required for resiliency.
Decentralized Finance Is Going To Keep Growing
Decentralized Finance (DeFi) has the ability to operate in a way that is immune from such moves. When we have money that is dedicated to this purpose, the risk of default drops greatly.
It is also something that is desperately needed.
Thus far, we saw cryptocurrency becoming a mock up for the existing financial system. Venture Capital firms went in and funded things the same as they always did. We also saw entities acting as custodians for people's money. Once again, no different from what we saw in the past.
This is not what creating an alternate system is all about.
For all the growth of cryptocurrency, in the end very little was done in the most important area. When it comes to financial matters, infrastructure, depth, liquidity, and sophistication are some of the most important factors. Here is where we saw a major shortcoming.
Wall Street tends not to change, hence approaching this in a predictable manner. We already see a number of banks filing to become custodians for cryptocurrency. The established system operates on the belief that because the government is overseeing things, it is safe. Of course, the Great Financial Crisis along with other instances shows this is not the case.
At the core of cryptocurrency is the ability to reach consensus without the use of third parties. Our present system uses financial institutions to provide that. Cryptocurrency puts this in the hands of the code.
Future development has to be built on this premise.
Funding And Investing
Cryptocurrency can make a major difference in people's lives. We are already seeing that with the Hive Borehole Project. Here we have real world impact achieved through the community tied to a blockchain.
The power of Wall Street is that it brings big money to the table. That is why we find many of them floating around Ethereum. That became the money chain and getting things funded there is where one has the greatest chance. Of course, usability comes into question, something that many are not evidently concerned about.
Money is power in our system. This does not appear to be changing anytime soon.
For this reason, those in cryptocurrency have to wrestle the power away from the establishment. A lot of this will come from having money. This means funding and investing ourselves in projects that end up excelling and having major impacts. We cannot allow Wall Street to keep garnering all the rewards.
This is how the power structure is altered. We see an integration of money, politics, and bureaucracy that arose over the last few centuries. It is to the point where they are all parts of the same body.
For us, it starts with building a new financial system on top of cryptocurrency.
Liquidity Pools
One of the biggest challenges is to have enough liquidity to challenge the existing system. This will require trillions of dollars. Here is where liquidity pools enter the picture.
To start, they have no KYC requirements. This is something that all centralized entities will encounter. Countries are not going to allow them to operate within their jurisdiction if they fail to adhere to this.
The second advantage to this is the elimination of custody. Unlike a bank, a liquidity pool always has the funds available. There is no need to trust the bank in this instance. Certainly, one has to ensure the platform is not going to rug pull so it is not completely without risk. However, over time, we will learn which projects are legitimate as compared to which are not.
When one enters a LP, he or she can remove the funds at anytime. There is no chance of a bank run since each person's stake is evident and free for retrieval.
Liquidity Pools are vital for intermediation. With DeFi, this falls to individuals. LPs are what enable people to get the right assets before directing them to the proper location.
Of course, for this to be fully functioning, a great deal more depth is required.
Money Creation And Intermediation
One of the major challenges with the present monetary and financial system is the fact that the money creators are also responsible for intermediation. Since they are for profit organizations, they perform these services with that goal in mind.
This is one of the major causes of wealth inequality across the world. Banks will create and direct money to where it is most profitable. This is in contrast to where it is most needed.
Again, we see how the Hive Borehole Project exemplifies this. Resources were directed to where they were needed. Profit does not enter the equation.
Another issue with both services tied together is banks will intermediate when it is most profitable. It should be clear to everyone that banks reduce lending when times get difficult. Economic headwinds means to things slow. Hence, just when the economy needs more money, less is available.
Decentralized Finance changes all this. Through the use of blockchain, with its distributed ledger technology, money creation is spread throughout the world. We now see around 20,000 different cryptocurrencies of varying degrees. Most serve no purpose and have even less value. However, in addition to Bitcoin, there are dozens of projects with development that will be a major part of the new financial system which is being constructed.
The Next Evolution Of Money
Over the past few hundred years, we saw major changes to our monetary and financial system. Blockchain and cryptocurrency are going to provide the next leg in the evolution.
At the core of this is decentralization. Our present system is centralized to the point where it is no longer functional for the majority of the global population. It is now time to lay the foundation for something else.
The bear market is just a hiccup along this path. Much of what we see being washed out was nothing more than a reiteration of what went before.
Before us is the potential to create an entirely new financial and monetary system. This does not mean putting a bit of window dressing on the same old house.
Money is changing and, thus, the same needs to take place for the financial system. The focus has to be on true decentralization, not some variation on it.
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Whereas on Hive, value keeps being generated and circulated. I don’t see a world where banks win, maybe in the past but not in the future we are going into
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That is true although the conversion value, in fiat, is obviously hindered. However, if we start to value the funding and investing based upon cryptocurrency value as opposed to fiat, then we could be talking an entirely different ballgame.
Here is where we see the use of stablecoins becoming an important part of the equation.
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There is potential and we already have a working model, now it is only a question can it survive a future and human deception and greed.
!LUV
Ironic the working model actually comes from the international banking system.
It is interesting that ledger technology for baking was around for decades. The only issue is that it was not distributed.
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It is obvious we have a working model but like you mentioned, greed, deception have those eliminated and we stand better chances of winning against the current system.
Hopefully our developers are seeing it's either complete decentralization or centralization which will end up failing.
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Crypto is built to be the opposite of the fiat system, which covers how value is created down to how it is being distributed. Tough times make great people, this is definitely a crucial time and with the developments on the ground, there's a lot of scaling to be observed.
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Well fiat is misunderstood since money is a lot more than just currency. We have to truly understand the totality of the banking system to really get to the core of it all.
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Wow, that is pretty insane. I guess I shouldn't be too surprised given how many of them there are, but that is still a kind of telling.
I look forward to seeing what the world will look like when we have multiple crowd funded projects thriving.
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It shows how leverage and integration with centralized entities along with capital can really cause issues.
The interconnectedness of it all wasnt really evident until the bear emerged. And then a lot of things started to collapse.
We are watching the cleansing out process.
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I'd actually missed the posts on the whole borehole thing. Thanks for sharing that again. It was pretty awesome!
It is amazing. They are on their third one in Ghana.
This shows the power of how things are expanding.
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That is totally amazing. So awesome.
agree as exchanges are going under are also have to follow gov rule we might see that in the future lot of crypto exchanges will be replaced with decentralized services.
Yes we are going to see even more regulation which means that centralized exchanges and anything to do with them will come under greater scrutiny.
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What we need is to show people how they can get the key features of "banking" without the bank. Liquidity Pools can replace both checking accounts and savings accounts. Include staking, and they can replace Certificates of Deposit or bonds.
I don't know enough to explain how credit will be handled in a DeFi world, but people will want to know about that.
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Well actually we need to create our own bonds. They are probably the most useful item as collateral if we can establish enough liquidity.
As for credit, it will simply come from secured loans. If people are amassing crypto through the variety of means, then they can easily turn that into a loan.
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Past narratives:
PC: No one needs home computers, they are toys for nerds. While it was true for a while, many realized there was usefulness and it changed the world. But it took time.
Internet: Only good for black market activities, nerds and it is a temporary fad.
Crypto: All crypto is a scam, utilized by blackmarket activities, a fad.
Our entire economy is mostly based on centralized sales points to help support distribution hubs and a variety of goods. So, the real power of decentralization the p2p transactions but it's going to take time to develop
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Agreed.
Only used for drugs, guns and porn.
Warren Buffett and Charlie Munger said so.
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Only mimic variations of decentralization has failed, decentralization itself cannot fail. All this crypto companies that went under weren't partly decentralized, they were mostly centralized, so went the economic headwinds blew there was no chance of surviving.
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That is true. We are being shown the weak points. This is a very informative process when you think about it.
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We will see which projects are most fundamentally sound and can wether this storm
A whole 25? Now, this is what is called carnage! The bearish market is really doing.....!🤐
Yes, at times those in control tend to cause the waves from the inside and to their own advantage..that is why a blockchain serves as a platform which abhors this.
You're doing an excellent job linking to LeoGlossary items from your articles. I linked twice, but I need to create more content suitable for more terms. On the LeoGlossary account, you could add the main menu post as the account's website, for easy access.
I am not following you.
The terms are being expanded so that you can find what you need in most anything you write on Leofinance.
Another 15-20 were added today.
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I meant if someone goes to the @leoglossary account directly, instead of bookmarking the main menu, there needs to be a way to easily find the main menu. In a community, you have the option to pin it, but since this is a normal account, a link on the profile is a good option. Like this:
I think the DeFi that I would like to see is how the Forex is forced on us. I feel crypto should get rid of the Forex system and make it more decentralized. This way the specific nations manipulating the pairs and also their own currency would not be able to do so. And we can see the transfer of value in a fair way.
Damn I went to write a comment and saw you received 1.4 million upvotes that’s crazy lol nice!
The sad part about the recent things in crypto is that the tried and true method of vulture lending was thrown at crypto and it did get some things killed but at the same time the good thing about it is that it’s on such a wide scale that it’s not easily controlled and the vultures became the prey in some scenarios. That’s good to see happen! That surely doesn’t happen on Wall Street and I know that some of the firms are taking a step back and thinking shit, we have to figure out how to manage that. I don’t think there’s a significant amount of things they can manage in the long run that will prevent them from being a victim which is good.
Add in decentralization of it all and there’s a good recipe for civilization to get some real financial progress if we can manage to keep it as best decentralized as we can.
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This bear market flushed all illiquid, centralized exchanges that were still working on the same principles of DeFi 1.0 and CeFi. They didn't evolve consistently and got fucked over this time. Most of them wasted money on excessive marketing.
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I agree with all your analysis in this post. I think that the focus should be that decentralization is what is truly important in everything related to finance today; because there is definitely no way to continue with the centralized model in a functional way (if it ever was), because if for fiat money it was not effective, for cryptos it is totally and absolutely unfeasible.
Although many think that the absence or increase of money is responsible for economies going well or badly; in my opinion, the excess or lack of money in economies and environments is not the cause of things going well or bad for them, but they are the effect or consequence derived from good or bad actions respectively. In other words, from my perspective, excess or lack of money (and the level purchasing power of that money)is the measure of the level of precision with which things are being done in the economies of countries, companies and projects, and also of the people themselves at an individual level.
In all of this, is clear that if the economies and investments are going badly, the symptom and cause (or one of the causes) of the problem is the centralized approach that governments and companies maintain; tied to the ideas of yesteryear and the traditional financial system. Fortunately, despite appearances and the current downward trend in all financial markets, we are on the right path towards a better economic future, and decentralization will be the fundamental key in all of this.
Your article is very interesting, it made me reflect on very interesting things regarding the issue of decentralization. Greetings.
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Fortunately, it is a path of no return.