Decentralized Finance - DeFi
crypto expert breaks down defi
Giving customers control - an overview of decentralized finance with Darren Webb, the Customer Experience Ninja at bitsian - the aggregated crypto exchange.
Often said by Morgan Creek Digital founder Anthony Pompliano is “Long Bitcoin, Short The Bankers.” He’s making this statement based on the inefficient banking industry and its processes. From Deutsche Bank being fined over $10Billion for money manipulation, to clients of Wells Fargo being unable to access their funds via ATM or online banking because of a server issue, centralized institutions are proving to be a deficient monetary system for the future of banking.
Decentralized finance is a new mode of finance run by decentralized applications on Ethereum. You can transfer funds, invest funds, borrow and self custody your own assets. Never before have consumers had the ability to participate and help build a permission-less and censorship-resistant financial system.
Lending will be transformed through DeFi. No longer will users be subject to fee’s on loans that when paid cost more than your initial loan or principal amount. There are services like BlockFi that allow you to stake or lend your cryptocurrency collateral and be given fiat cash in a swap. True peer-2-peer lending on decentralized ledgers will allow for global access, anonymous lending, secondary markets and a decentralized intermediate.
Stablecoins are digital assets who’s value is pegged to another asset. That asset can be fiat currency, a basket of cryptocurrencies or even bullion. Stablecoins are important within the ecosystem because cryptocurrencies have shown to be volatile with the price often being affected by speculators and the markets moved by whales. Use cases for stablecoins include remittances as a stable currency is needed to send value across borders.
DAI is a stablecoin that is tethered to USD, so 1 DAI = 1 USD. DAI is governed by a decentralized central bank in the Ethereum economy called Maker. Every DAI is backed by an over collateralized amount of Ether making DAI essentially a synthetic version of Ether, only stable!
The rise of ICOs or Initial Coin Offerings changed the landscape of fundraising forever. Never before has a company been able to raise money in exchange for programmable liquid equity. This equity represented as tokens can be traded 24/7 and across borders. All while in most jurisdictions across the world investors do not need to be considered an accredited investor. Companies and projects utilizing ICOs raised $7.8 Billion from retail and corporate investors in 2018.
IEOs or Initial Exchange Offerings are new versions of ICOs that are run on exchanges who promote the fundraises and list the tokens after the fundraise. The exchanges have a large devoted user base and marketing the product becomes about messaging and not searching for potential users.
Binance has completed 4 successful IEOs through their Binance Launchpad program. Binance collects fee’s from the potential successful fundraise and entrepreneurs have a trusted exchange partner to help boost their fundraising efforts by tapping into their user base. To date, Binance has successfully launched 4 IEOs whos token price is continuing to trade above their initial offering price.
Store Of Value
The use case of Bitcoin has recently shifted to a store of value. The definition of a store of value is an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Argentina is going through a period of hyper-inflation as their annual inflation rate has topped 80% and their native fiat currency is becoming worth less by the day. If an Argentinian citizen had bought bitcoin at its ATH in 2017 they would have had a better return than letting their money stay in their fiat bank account. Bitcoin is easily transferrable, acquired and utilized.
However, gold bulls state that gold is less volatile, has a more liquid market, trades in a regulatory framework, and that cryptocurrencies extreme daily and intraday volatility disrupts its use as a medium of exchange and discourages strategic investments.
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