Cryptocurrency is changing a lot of things in a short period of time. While we see regulators, mainstream institutions, and a host of other parts of the established financial system trying to catch up, the industry itself is forging ahead.
For this reason, we are seeing development that is going to usurp a lot of industries, disrupting and even destroying companies in the process. This is what the Internet does and the Internet came to money.
Decentralized Finance is getting a lot of attention, not all of it positive. In spite of the negative actions on behalf of some players, there is an incredible mechanism being established. This is truly going to revolutionize people's interaction with the financial world.
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To start, DeFi has the goal of providing financial services to everyone on the planet. Anyone with an Internet connection will be able to engage in these services, receiving much needed financial access. The present system leaves out billions of people.
Second, and more important, everyone who is involved in cryptocurrency will end up being a bank. DeFi is going to allow anyone to not only utilize banking services but also provide them. As more features and functionality is added to the industry, we are going to see this expand to include everyone.
At present, liquidity pools are a popular option for people to gain a return on their tokens. Essentially, this is performing the service of market maker, something that is typically relegated to the major banking institutions. Basically, when there is a lack of liquidity, they step in to offer it.
With DeFi, for currency swaps, pools are funded by individuals who stake their tokens. Since they are paired, the pool will fluctuate back and forth between the tokens as the market dictates. As demand for one increases, the supply of the other ends up moving into the pool. Market dynamics will usually produce a reversal at some point. Over time, the pools will remain fair steady even though the numbers of tokens are fluctuating.
We also see people acquiring wealth as time goes by. Through a variety of mechanisms, the amount of crypto people are holding is growing. Each day, existing projects offer out more tokens. This is enhancing the holdings of each individual who is involved.
This is vital because, as the world of DeFi expands, we are going to see many more options for people regarding their tokens. We are still early in the game yet collateralization is an area that has enormous potential. Hence, we will see the time when millions of people take their assets and collateralize them. This opens up an entirely new arena of "lending".
What is fascinating about all of this is the fact that we see the power of what many can do. With banks, it is only a few players involved, each putting up enormous sums of money.
DeFi produces a completely different perspective. Instead of a few large institutions, it is made up over individuals putting up whatever fits in their financial range. There are people involved with only a few dollars while others are in for millions. Either way, all are participating and producing returns.
We simply do not see this in the present financial system. Regulators, in the United States, work hard to protect the wealthy. While some might take exception with that statement, it is the case. The only way this is not true is if the regulators things that the general public are completely idiots, a point that might be hard to dispute.
Either way, the financial system is tiered. The juicy stuff is only available to "accredited investors". This means people with a lot of money. The rest of us, we are left to pick up the pieces. Sure there are markets to enter and fine returns to be made. The big money, however, was already taken off the table.
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People in cryptocurrency are realizing what those involved with Wall Street knew for years. Money is nothing more than a game. It is a mirage that people get emotionally attached to yet is not real.
Individuals now have the ability to create their own currency. People discuss the idea of the Fed generating money "out of thin air". Well, the crypto industry does the same thing. Thus, we are on equal footing with any central bank.
At the same time, the derivative market is estimated to be worth more than a quadrillion dollars. This is nothing more than financial products which Wall Street made based upon other products out there and sold them, thus pulling in more money. The basic value of this is backed by nothing. It is truly a market driven asset.
The Archegos Capital Management Crisis was a prime example of this. That fund used swaps to leverage positions, sometimes up to 500%. It owned none of the underlying stock. Thus, anything in their portfolio had no backing.
And people have the audacity to claim that cryptocurrency has no intrinsic value. Look at most of the stuff Wall Street related firms trade in.
Simply by owning a cryptocurrency wallet, one eliminated the need for the most basic of banking services. Banks, for most people, provide a place to send, receive, and store money. That is exactly what a crypto wallet does. Therefore, the need for a bank is being reduced as more of people's wealth is held in crypto.
The discussion of CBDCs often overlooks this simple point. Once they are released, the need for banks plummets. If a country implements an across the board CBDC, the "bank" will be the wallet itself. This alone shows that CBDCs are not for bankers but, rather governments (politicians and bureaucrats).
Of course, the difference there is who has access to the wallet. With a CBDC, the government will enjoy full access. That is not the case with cryptocurrency. Whatever you have in your wallet, is protected by your key. Hence the saying, "not your key, not your crypto".
As we can see, the entire world of finance is changing before our eyes. The fact that millions can now get involved and enjoy as well as provide basic banking services is revolutionary. This will only grow as more development takes place.
Ultimately, most of the planet will be involved in both aspects of this. This will see us all being banks in some form or another.
The difference is that we do not have someone scalping out money every step of the way like we do now.
In my mind, this is a major step forward towards freedom.
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