Analysis: Can DeFi survive after leaving Ethereum?

This article will rationally discuss the current status of DeFi, and thus lead to thinking, can it become a financial technology revolution?

Cryptocurrency fintech theme with businessman holding a tablet c

Over the past 10 years, financial technology companies have created a number of financial products and services for those tech generations that are dissatisfied with traditional banks. But is there really a breakthrough compared to traditional banks? Is definitive finance (DeFi) really a financial technology revolution?

After the financial crisis in 2008, a number of financial technology start-ups rushed out. Mobile banking applications, personal-to-personal (p2p) loans, low-cost payments and money transfer solutions have emerged. While many financial products have significantly improved traditional banking solutions, they represent only incremental improvements, not financial revolutions. Today, the blockchain-based DeFi project is revolutionizing the unfulfilled financial services revolution of “traditional” fintech start-ups.

The rise of decentralized finance

Before the word "DeFi" was introduced into the dictionary, Bitcoin pioneered decentralized finance. Bitcoin is the first decentralized, open source digital payment method that makes everyone a bank.

However, at the end of 2019, the encryption story changed. Bitcoin is gradually becoming a value storage method for "digital gold." Future Layer 2 payment channels, such as Lightning Networks, will enable Bitcoin to function as a simple and large-scale trading medium.

At the same time, more and more people think that Ethereum is the emerging center of the DeFi ecosystem. Decentralized loan agreements, de-trusted derivatives transactions, and tokenized assets all come from innovations in blockchain smart contracts.

Any place in the world that can connect to the Internet can access basic financial services, such as borrowing, through DeFi applications. This is not possible with traditional financial institutions or financial technology startups.

Moreover, individuals who are subject to national Internet censorship and strict capital controls can access the global financial market through the DeFi platform.

Are financial technology startups just hackers who have grown into banks?

When the technology finance solution was first introduced, the friendly interface, bureaucratic style, diversity of choices, and low commissions caused considerable sensation and attracted a lot of venture capital. Mobile banking applications, peer-to-peer lending markets and low-cost online money transfer platforms have quickly gained a foothold in this market, especially for the millennial and younger generations.

In a sense, the early booming financial technology industry has a feeling of “financial technology PK bank”. Many financial technology entrepreneurs with idealism believe that they can challenge the status of banks and defeat them on their main boards.

Nowadays, a large number of financial technology start-ups have become or will soon become banks.

Bloom Protocol and Cognito co-founder John Backus said on Twitter that "they just have to borrow the slogan of financial technology. Every financial company is only strategically disguised as a growth hacker, the real purpose is to become a bank." “Roinhood, Stripe, Coinbase, Affirm, Acorns, etc. are essentially banks.”

In the list of financial technology companies listed by John Backus, Revolut was originally a prepaid card that supported multi-currency payments and was granted a banking license in 2018. Robotics Betterment added the check deposit and savings accounts guaranteed by the Federal Deposit Insurance Corporation to the product range, and the P2P lender Zopa also obtained a banking license in 2018.

Although a financial technology startup has no fault in obtaining a banking license to expand its business, they all avoid a common problem: innovation? Is it revolutionary?

With banking licenses, regulatory restrictions and cumbersome procedures prevent banks from providing innovative, convenient financial products and services. So it's hard to imagine that financial technology startups can challenge their status as they have challenged banks in the past. (After all, their current identity is the bank)

Decentralized finance provides the innovation that is currently lacking in the financial industry. Decentralized financial services can be used anywhere in the world where there is a network, and it is likely to subvert the financial industry in an unprecedented way.

If the user is in an emerging market and cannot access traditional banking services, he can log in to the DeFi platform, borrow money to stabilize the currency, expand the company and repay the loan, and no longer need to use the banking business.

Similarly, users can send money to their families in a peer-to-peer manner through the DeFi platform.

It is also possible to invest in tokenized assets or pledge currency to obtain interest while fully controlling their own funds.

Can DeFi survive after leaving Ethereum?

Now Ethereum is the best blockchain creation platform for developers. The market value once exceeded $18 billion. However, in the face of network expansion, planned escalation and repeated delays, and increasingly fierce competition, Ethereum may also decline.

Fortunately for the Ethereum community and ETH "holders", the rise of DeFi can bring interest (and value) back to the blockchain project led by V God.

The top DeFi projects based on Ethereum and having ERC-20 tokens are Augur (REP), Gnosis (GNO), Kyber Network (KNC), MakerDAO (MKR and DAI) and 0x (ZRX). Their current market capitalization is currently about $800 million.

This top-level DeFi list removes the use of Ethernet as its own currency/asset, such as Compound, Dharma, ETHLend, dYdX, Nuo, and Set Protocol. Therefore, the proportion of DeFi projects in Ethereum is quite large.

It remains to be seen how many DeFi projects will remain in “Ethereum” or move to another, more advanced blockchain. Will innovation in the DeFi market be more disruptive than the innovations provided by the “traditional” financial technology industry? At present, the only thing facing the blockchain industry is the common problem with the traditional financial industry – expansion, usage and availability. Author | Alex Lielacher

Source | bravenewcoin

Translation | First.VIP Tracey

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