How did DeFi evolve out of Traditional Finance? Let's take a look at some definitions and explanations which will help us on our evolution journey.
Transaction- exchange between a buyer and seller
Market- group of transactions
Micromarkets (farmers markets, local produce, etc.)
Global Markets (gold, oil, etc.)
The global financial system is in crisis. More than 20% of all dollars in current circulation were printed between 2020-2021. This has increased inflation and blown up most local and global market prices- inflation is not always bad if everything else in the economy simultaneously increases output- we are still waiting to see if economic output will catch up with inflation.
Traditional Finance was built to keep Traditional Finance Kings winning. Consider the recent examples of GameStop trading through Robinhood. When retail traders got together to defeat the overlords, they were barred from the ability to keep buying this stock,
Pros and Cons of Tradfi-
Pros - Centralization produce grounds for stability and rapid expansion Cons- Fraud
-Stability in core and accepted assets Mismanagement
-Security handled by centralized authorities. Theft
-Primary financial system = strong network effects Lack of control on how money is used
Lack of custody
Central actors reap most profit
With the current rate of inflation (at least 5%), most typical savings accounts ( >1% APY) are losing money, plus there is no transparency on how your savings is used, and what it truly yields.
Defi is born.
Tradfi vs. DeFi
Tradfi- KYC
Low interest rates
Custodian
Deep liquidity
DeFi-
KYC Free
Fast onboarding
No Custodian
On Chain transactions
Both-
Lending
Margin Trading
Asset Management
Spot Trading
Saving
Pros and Cons of Defi
Pros- Self Custody Cons- User Experience
No centralization means accessability for everyone Complexity
Permisionless High learning curve
Uses Smart contracts OpSec issues
transparent and immutable Rektage happens fast if youre not paying attention
fast moving
Self Custody
- You are your own bank.
-Nobody can stop you from accessing, moving, loaning, or earning on your money
-Choose where you put your money
- You know excactly who has access to your money
- No middleman to finess or protect you.
Block explorers make every single transaction in the network visible, something unheard of in Tradfi.
Smart contracts (contracts written in code) provide a trustless environment, so that users do not have to trust eachother, and can instead interact with a smart contract.
Defi= Permissionless ,Decentralized, Anonymous, Transparent
Money is flowing rapidly into Defi, giving rise to rapid innovation.
Examples of different forms of finance
Defi- Curve, PancakeSwap
Centralized- Coinbase, Binance
Traditional- US Federal Reserve, Bank of America
TradFi does not help the retail investors. DeFi offers a previously unavailbe opportunity for anyone, regardless of net worth or nationality, to custody their own funds.
Full lessons are tokengated productions from Omakasea.
https://www.notnintendo.com/learn/content
Access Tokens:
PokeGAN by NotNintendo - Collection | OpenSea
