DeFi blows up the "invisible revolution" despite the downturn in the crypto market!!!
DeFi blows up the "invisible revolution" despite the downturn in the crypto market!!!
- Although the outlook seems bleak in the short term, DeFi's early successes suggest that it will unleash the software's long-awaited disruptive capabilities in the world of finance.
- DeFi's "invisible revolution" will be characterized by several macro-industrial shifts, including socialized operating costs, embedded financial services and deep market liquidity.
- Crypto's distributed nature will support users in limiting state authority, while its real-time verifiability will provide DeFi with the tools it needs to comply with national regulatory policies.
Crypto has experienced a historic bull market in the last 24 months. It opens and closes with the expectation of DeFi: a global,, financial system available to anyone with an Internet connection. Between the two ends of the spectrum, theWhile the market's attention has shifted to NFT, Web3 and P2E, DeFi's adoption has been growing steadily.Although the market has experienced a period of volatility, theHowever, the ratio of stablecoin supply to TVL is growing in tandem. This ratio is adjusted for price and is more representative of DeFi's value than TVL.
RecentTerraThe incident brought DeFi back into the public eye: in just a few days, the network evaporated $28 billion. Just two years after the world discovered its programmable build block, Defi found itself faltering and in a disillusioned slump. Hopes for a massively decentralized stablecoin were temporarily dashed. Scalability and interoperability solutions are still in the early stages of development and cannot support global crypto user access. In addition, regulations developed by hawkish nation-states are likely to be forthcoming.
Although in the short term the outlook seems bleak, theBut you'd be wrong to think that expectations of DeFi will never be realized.Throughout the short and eventful history of crypto, Crypto's anti-fragility has made it stronger with each major adjustment. deFi is no exception, and the internet is destined to have a decentralized financial system to match its distributed distribution.
Perceiving the "invisible revolution"
It's been nearly a decade since Marc Andreessen declared that software was eating the world, and in a 2013 article, Andreessen noted that"There is still too much debate around financial valuations, rather than the potential value of Silicon Valley's best new companies."Software is quietly changing almost every industry, but its full potential has yet to be appreciated by the masses.
The fintech mania of the 2000s and 2010s wrapped the existing financial system in a digital blanket, making flashy improvements to the front end and attracting a lot of VC capital. Online banking and mobile payments became ubiquitous, while automated KYC processes gradually brought more people onto the permission-based value transfer track. Yet, 30 years after the software revolution, the back end of the financial industry remains a slow, bloated system characterized by days of settlement time, weekend downtime, high intermediary fees, and high levels of human intervention. These companies pretend that consumers' lives have been substantially improved by their "digital transformation" efforts. But this is just an illusion designed to prolong their use of outdated technology stacks.
Defi is an all-encompassing term for the distribution of capital and transfer of value on decentralized, cryptographically secure digital networks. It is a panacea that will unleash the long-awaited disruptive power of software in the world of finance. The process of dismantling decaying infrastructure will be similar to replacing a car engine, and the impact will not be visible to the naked eye or appreciated by the world until the transformation is complete. To understand what the future holds, let's explore the characteristics of DeFi's "invisible revolution".
Social operation cost
McKinsey estimates that the annual revenue of financial intermediaries (2019) is $5.5 trillion. From the perspective of an economy, this is $5.5 trillion in operating costs. However.Instead of centralizing all of these cost sources in a dedicated financial services sector, a de-trusted blockchain allocates the costs of creating and maintaining financial markets to network users.
Autonomous smart contracts are a killer innovation for DeFi that will not only help redistribute these costs, but will also significantly reduce the impact on individuals and businesses.Uniswapand protocols such as Yearn show that one can simplify complex financial actions into simple automated processes at a fraction of the cost of the labor required by existing systems. As with manufacturing during the industrial revolution, it is impossible for humans to compete with machines (or code) in terms of marginal cost.
Of course, this is not to say that the physical world will migrate its infrastructure and business model to crypto's license-free track overnight. However, as the fixed costs (IT redesign, human capital and time) and ongoing variable costs (fees, contract maintenance and regulatory compliance) of implementing smart contracts outweigh the operational costs of continually updating siloed IT systems, companies will gradually move to adopt decentralized technology stacks on their chains of choice.
Embedded Finance and D2C Financial Services
Matt Harris of Bain Capital describes FinTech as the fourth platform shift of the Internet. Specifically, he argues that financial services are no longer standalone businesses, but products embedded in the business models they support. the open source and composable nature of DeFi is the last missing piece of the puzzle. It will support embedded finance to reach global scale. Fintech companies will no longer focus on connecting isolated infrastructures - they will create reusable templates for businesses to tap into the native economy of the Internet.
The shift to an embedded financial world will also change the relationship between every business and its customers. Just as the Internet provides a channel for every company to communicate directly with its customers, DeFi will support companies to establish D2C (business-to-consumer) financial relationships at scale. Integrated payments, insurance and lending will characterize the decentralized economy. nft will support receipts on the chain and serve as vouchers for discounts and cross-selling. As users build these on-chain histories, they will create the necessary foundation for open social graphs that can be used for under-collateralized loans and credit networks. With conversion costs close to zero, a thorough understanding of the customer and aggressive improvements will ultimately separate the winners from the losers.
The number of on-chain assets will continue to grow exponentially in the coming years.NFT is positioned to "digitize all of financialization," some countries may release CBDCs in the next decade, and the creators of Web 3 will begin to understand the power of social tokens.
DeFi Matrix was created by Balaji Srinivasan and includes pairs of transactions that exist in all crypto assets. In Srinivasan's words, billions of assets are traded against each other every second of every day, while providing varying amounts of liquidity to various order books and AMMs. Each cell in the matrix represents the various markets available for that asset pair.
All financial markets can be reduced to the sub-matrices that exist in the overall DeFi matrix. The national stock market could contain tokenized stocks that trade with government-backed CBDCs. The FX market would evolve to CBDC vs CBDC, while the fiat/cryptocurrency market would continue to be crypto-native assets (BTC, ETH, etc.) vs CBDC or stablecoins.
The Sovereign Individual predicts that such a system, based on an always-on market, will bring the roots of commercial bartering up to date. The liquidity of different assets would exist in a range and would provide real-time information on the stability of an asset's price relative to other assets. In addition, it would allow for efficient capital allocation on a much smaller scale than the current system. If this occurs, we may not need to solve the decentralized stablecoin problem, as complex matrices of hedging strategies may be created in a near-infinite number of markets. As the recent UST crash has shown, it is liquidity that is important to the economic system when the economy is in trouble, not stability.
Zero Knowledge (ZK) Privacy
Companies will not use a distributed ledger public ledger without considering privacy. Zero Knowledge (ZK) technology will be a breakthrough feature that enables companies to use public ledgers while retaining sensitive data and information details. While general ZK rollups and ZK-based smart contract networks have been the focus of ZK development, connecting existing enterprise backends directly toEtherWork is progressing on the et al. chain, and in July 2021, EY open-sourced the code for Nightfall 3. By combining ZK proofs and building onPolygonThe development of ZK technology is still in its early stages, but with advances in smart contract scalability, tokenization and automated marketplaces, it will soon become a key factor in integrating our physical and digital economies into one.
It is well known that nation-state regulations will regulate the wild west of cryptocurrencies. While the timing and specifics of the regulation remain unclear, we have seen some indications that the DeFi landscape will be divided between regulated whitelisted markets and unlicensed black markets. launched earlier this year, Aave Arc aims to provide a licensing pool where every user is verified and compliant with existing KYC and AML compliance frameworks. As the crypto market matures, it is not surprising to see these licensing instances being integrated into the various L1 ecosystem leading protocols.
This will not cause existing, de-trusted DeFi usage to disappear from the market. In the post-epidemic era, we know the right to vote with our feet. As these financial tools become increasingly important in the coming years, both users and businesses may seek judicial freedom if governments restrict their use. De-trusted DeFi is like a virus, and governments around the world have proven themselves unable to slow its spread. People have the final say on whether to transact in a licensed type.
To prevent the world from descending into anarchy, some sort of compromise is needed between regulation, oversight, and a completely free market. Fortunately, the open and verifiable nature of encryption will provide individuals and businesses with the tools to facilitate that negotiation. deFi audits and risk assessments will be conducted in real time, and ZK proofs will allow businesses to show whether they are compliant without disclosing the information that gives them a competitive advantage in the marketplace.
The Battle Cry
With the crypto market on the verge of another short or long hibernation period, the community must keep in mind the long-term future we are building. These predictions may not be fully realized for another 10 or 20 years. As the "invisible revolution" proceeds, there will be many dramatic bumps in the road. However, Rome wasn't built in a day, and DeFi is no exception. When the obstacles suddenly become insurmountable, it would be contrary to Satoshi Nakamoto's mission and our industry goals to give up.
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