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What are We Really Talking about in DeFi ?
I realize this entry is late but I did not find out about the competition until the last minute. I love the idea of a regular DeFi contest. Hope you accept this and if not, my hope is that it furthers the agenda of your DeFi mission.
The subject matter of this article is kept fundamental. It’s intended to set the stage for more elaborate conversation and connect with those new to crypto.
Please bear with me as some of these concepts are written with the expectation that the reader has minimal experience with cryptocurrencies and finance in general.
Finance
DeFi stands for decentralized finance. Many people use the word finance and money synonymously. Indeed they are not.
When we finance something, payment has not been settled. True blockchains are platforms that provide payment settlement. Cryptocurrencies are digital assets more than a type of currency. We still use the term ‘currency’ because they are easily traded.
Unlike paper dollars that are destroyed once overly worn, each cryptocurrency represents a location on a blockchain. Additionally, each crypto contains some information inside of it. Consider the Bible blockchain project that includes a verse in its transactions. Some people value these words more than any others.
It is important to emphasize that finance is about moving money around. Liquidity, unlike banking, safes, and safety deposit boxes is essential to finance. Money in FinTech is set aside for real world companies with real employees that simply lack the assets to grow.
Decentralization
Decentralization is the key to DeFi. There’s not very much value in moving numbers around ledgers that exist within the same company or organized body. The banking community merged and partnered to a point where its activity no longer exhibits the traits of a free market. Bureaucracies that emerged in recent decades have even imposed rules that essentially make much of the transactions that occur in the banking industry redundant.
That is, insurance and banking have created a barrier to free markets.Businesses and economies need decentralization. For individuals it's about the ability to decide how your money is spent. For businesses it’s about deciding what to produce and who to trade with. Consider an accounting ledger of an insured bank. Since your money is insured up to a certain amount, the bank can make decisions that place the responsibility on the insurance provider. Insurance companies know this so they respond by further re-insuring themselves.
In contrast, the accounting ledger of an independent small business enterprise will have a vested interest in every entry in its books.Cryptocurrencies demonstrate an even greater connection to free markets than that of small businesses. As digital assets, the value for an individual or business is equivalent to a real goods at a physical warehouse or garage.
Decentralization has more claim to being synonymous with trade than finance does with money.Concluding Thoughts
The more people that think in terms of DeFi, the more diverse and functional our economy becomes. Anyone with online access is instantly an entrepreneur. DeFi takes ideas that we share on Facebook, Twitter, Instagram etc. and makes them immensely more actionable!
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