3 Things to Understand About The DeFi Movement
Spurred by the rise in popularity of cryptocurrencies, Decentralized Finance, or DeFi, has quickly become a multi-billion-dollar industry.
Combined with the growth of financial technology, or FinTech, and the seemingly endless possibilities for blockchain, DeFi is now a global movement causing major disruption of the traditional financial system.
It’s reinventing the most fundamental ideas about how finance works. While finance has typically been controlled by centralized institutions like banks, DeFi puts the power directly in the hands of individuals, allowing finance to become more agile, flexible and transparent.
By simply downloading the right app, anyone can now use a range of financial services without a bank or intermediary. The DeFi industry has witnessed massive growth in 2021, with huge support from venture capitalists and professional investors. Even the biggest financial institutions in the world, like JP Morgan Chase and Goldman Sachs, have begun to embrace the movement by creating new departments aimed at DeFi, cryptocurrencies and FinTech.
While there’s no telling how much change will result from the rise of DeFi, one thing is clear: It will change the financial landscape in ways that will affect nearly everyone.
Here are three things you need to know about Decentralized Finance:
DeFi Is Speeding Up Finance
Many DeFi banks are challenging the most basic ideas about banking. With decentralized blockchain protocols, DeFi banks can scale banking capabilities, payment management, and nearly everything else.
One such DeFi bank, Intellabridge Technology Corp., offers many traditional banking services with totally decentralized blockchain technology.
Kash, the company’s newly launched banking system, will offer familiar services like checking and savings accounts, debit cards, and investment accounts. But all those will be built on stable coin and other blockchain technologies, empowering their users with super-fast speeds and seamless transactions.
“Intellabridge is simplifying the process by which the average person can get exposure to DeFi,” said Sheldon Inwentash, the Chairman and CEO of ThreeD Capital, which invested $375k in the company in early 2021. “Our investment in Intellabridge perfectly aligns with our vertical of and belief in blockchain and other decentralized technologies.”
Personalization Is Coming
The new DeFi banks are also challenging conventional banking models by offering more personalized services for both individuals and businesses.
Banks like Commerce West Bank and Alpine Banks of Colorado now offer consulting services for businesses and digital tools flexible enough to be customized for individual needs.
Many traditional banks continue to operate on a business model that sees economies of scale as the sole path toward improving profit margins. As a result, people tired of dealing with those banks’ outdated customer service are turning to more regional banks like the above.
Investments Pouring In
Large institutional investors have hopped on board the DeFi movement in 2021 in a big way.
In the third quarter of 2020, the share of total DeFi transaction volume from those institutions grew by about 10 percent, according to a report from Chainalysis. By the second quarter of 2021, that number rose to more than 60 percent.
The biggest financial institutions in the world are no longer ignoring the DeFi movement. They’re now actively supporting it.
Trovio Capital Management, which focuses only on managing digital assets, recently announced a Digital Asset Income Fund, which is “a market-neutral, non-directional fund that plans to extract yield through strategically investing in stablecoin-based DeFi protocols and capitalizing on more traditional arbitrage opportunities,” according to a NASDAQ article.
“TCM believes the Fund is capable of returning 15%-20% net of fees per annum,” the article said.
Decentralized Finance represents a seismic shift in how finance works. The innovations happening now are likely just a taste of what’s to come in the next few years.