The hot potato in the world of crypto at the moment is decentralized finance. Satoshi’s original notion of cutting out the bankers is now possible in this new world of digital assets and DeFi protocols. The industry is still embryonic but some of the bigger names in the world of crypto and finance are finally paying attention.
Crypto Wealth Management Built on ETH
By definition decentralized finance is a movement that leverages decentralized networks to transform old financial products into trustless and transparent protocols that run without intermediaries. In essence it is doing away with the banks and middlemen to allow people to manage their own wealth on autonomous networks governed by smart contracts.
DeFi is currently dominated by DAI which is a decentralized hard asset backed, dollar pegged stable coin. DAI, and the MakerDAO platform uses margin trading to respond to changing market conditions while preserving its value against the major world currencies. Maker is a smart contract platform on the Ethereum blockchain that backs and stabilizes DAI through a series of dynamic feedback systems called Collateralized Debt Positions (CDPs).
By depositing ETH, people can borrow stable DAI to make other investments without risking the loss of ETH, which is what happened to most during the ICO boom. Essentially it is a crypto credit facility that can issue loans at certain interest rates. Stakers are also able to use it to generate interest while protecting their stake. Industry observer Alex Saunders noted that in a world of negative interest rates DeFi could be the answer …
Imagine #Defi Apps offering 10%pa in a world of negative interest rates. Accessing stocks, commodities & tokenised assets. Portfolios auto rebalance. Smart contracts allow custody & insurance. No middlemen taking fees. The future of wealth management is being built on #Ethereum. pic.twitter.com/Crcfm3OjhO
— Alex Saunders (@AlexSaundersAU) September 10, 2019
Maker is not the only DeFi platform out there but it is the most popular at the moment. Two others have recently be noticed by crypto exchange giant Coinbase which announced a new fund to invest in the fledgling industry.
Coinbase Invests in DeFi
In a company blog post yesterday, Coinbase stated that it aims to encourage growth in DeFi by channeling funds into the development of two protocols. To begin it will contribute 1 million of its own stablecoin, USDC, each to the development of the Compound and dYdX platforms.
Coinbase USDC Bootstrap Fund lead Nemil Dalal said that DeFi is a tiny portion of the world of banking and financial transactions, adding that the company is tracking growth in an effort to further fund its expansion.
Just last month Nasdaq announced that it was adding a decentralized finance index (DeFiX) to track the projects working in the field. It initially included Maker, Augur, Gnosis, 0x and two other obscure tokens but failed to include Ether which currently powers most of the industry.
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