[Question] "Could you explain the concept behind decentralized finance and layman terms and how it is revolutionary in nature?
What are the downsides of it?"
All right. So the the basic concept of decentralized finance is to create all of these
composable
basic finance primitives that are
implemented as smart contracts with some degree of decentralization
And one of the things we're going to be talking about today is what exactly does it mean to say some degree of decentralization.
There is a balance to strike in how decentralized a platform is
between fully decentralized -- when no one has any control and if something goes wrong,
all of the funds go "poof" as we saw with the DAO -- to somewhat
decentralized with some governance overrides, maybe an escape hatch
for when problems happen to shut down the smart contract and refund funds.
And of course not so decentralized when
there are effectively management keys that allow
all of the functions of the smart contract to be overridden by a small number of parties. And there's all of the range in between.
So that's the "De" for
decentralized in DeFi.
Of course, the "Fi" part means that this is primarily focused on financial products and that means
lending, investing, borrowing. Of course, saving,
implementing various forms of currency tokens,
non-fungible tokens,
various forms of
asset-backed
tokens and things like that,
crowdfunding and crowd raising or fundraising
mechanisms such as...
What are they called? Token bonded curves? Yes, that's the fancy term
used in the Ethereum space. And for the most part we're talking about
DeFi as a function that has come out of the development of Ethereum.
But of course DeFi isn't restricted to Ethereum. Quite the opposite, DeFi is an entire industry
and the best way I'd like to
describe DeFi is by contrast to CeFi. CeFi, of course, is centralized finance. That's when somebody else takes your money,
abuses it to implement political favors in their benefit and
then charges you for the privilege of them holding your money.
And perhaps if you're lucky they give it back to you, perhaps not. While enriching themselves unfairly in a parasitical
co-dependent relationship with government. That's CeFi. So, DeFi
really can't fail,
UNLESS it becomes CeFi because CeFi is already
an incredibly damaging parasitic system
that plagues our planet.
So DeFi is an approach that is primarily focused on
decentralizing the power dynamic, that's the real key here who has power over money. And by
decentralizing power over money, what opportunities does that give people to have better relationships with their money?
And not be exploited, as well as how does that increase access to financial services by
disintermediating all the gatekeepers
that prevent
and limit access to financial services effectively banking the unbanked or de-banking all of us.
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