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(ID: hxcj24h), author: Dipperin Pan Pengfei, reproduced by Odaily with authorization.
In August 2018, DharmaLabs co-founder and chief operating officer Brendan Forster first proposed the concept of "DeFi" with the belief that decentralized finance will become the mainstream in the future. Relying on the characteristics of the blockchain, DeFi has proposed new solutions for traditional finance, and the two can form a useful complement in the current environment.
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The traditional financial model is going to twilight
In our daily social life, finance realizes the circulation of value across time and space, and is the core of the modern economy, bringing countless conveniences to people. The financial institutions we usually come into contact with can be roughly divided into banks, funds, securities firms, insurance, trusts and other types. The essence of the operation of these institutions is often to adopt a centralized method, use their own authority, as a credit intermediary connecting the fund supplier and the fund demander, and then charge a certain amount of interest or return.
It is understood that these centralized institutions absorb deposits from ordinary people and invest in some specific institutions or entities. Due to regulatory requirements and differences in the types of institutions, they have the power to become "creditor's rights and income rights" for different business names and investment targets. , Equity, Stock, Currency, ETF, REITS", etc., the business names are also different, the purpose is to achieve the expected return on investment, or to prevent certain risks through hedging.
With the advent of the Internet age, there are various P2P companies and wealth management companies on the market. The mutual finance company under Tencent and Ali can be regarded as version 2.0 of the financial industry, called Fintech, but its essence is not much different from traditional finance.
According to the data, by the end of 2018, the global asset management industry had reached more than 80 trillion US dollars. After the financial crisis in 2008, the compound growth rate of the market reached 12%. In recent years, the overall size of China’s asset management market has remained at 124 trillion yuan. It will reach 200 trillion in 2020, mainly dominated by bank wealth management, trust plans, insurance asset management, brokerage asset management, and public/private equity funds.
Take the 2008 US subprime mortgage crisis as an example of the Hollywood movie "The Big Short", the third-party intermediary cannot guarantee independence, and the credit rating of the middle and low-level assets in the securitization of mortgage assets has a huge error with the actual situation, which eventually leads to information gaps and disasters. The greed and ugliness of human nature are vividly displayed in it.
It is understood that the black box of the investment process, the failure of the risk control link, the pet-like third-party evaluation agency, the centralization of the asset management enterprise structure, the short-sighted project benefits, the lack of asset liquidity, and the hollowing out of the underlying assets are the "seven cases" of traditional asset management institutions. crime". This also indicates that the traditional financial model is going to twilight.
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DeFi brings improvements and revolutions to the financial industry
DeFi was originally a concept of the currency circle. It can be seen that the founding members of DeFi are all currency circle projects, focusing on the construction of financial facilities in the Ethereum ecosystem. More directly, the initial mission of DeFi is to build financial infrastructure for various tokens in the Ethereum ecosystem. In the eyes of practitioners, DeFi is expected to realize the automation, intelligence, and decentralization of the financial industry, and it will also allow the blockchain to once again empower the real industry. From stablecoins, digital currency lending, decentralized exchanges, to larger and broader securities, futures, and derivatives markets, the tentacles of DeFi are constantly expanding.
At present, the decentralized ecosystem formed by the DeFi system includes: wallets, exchanges, stable coins, loans, derivatives, and asset issuance, initially covering the major functions of the traditional financial system. Entering 2019, the concept of DeFi has become the focus of the blockchain industry and the financial industry. Benefiting from the continuous improvement of the blockchain industry ecology, the industry has expanded the connotation and extension of DeFi: using open source software and decentralized networks to transform traditional financial products into trustless and transparent protocols. Accordingly, DeFi includes not only open source blockchain projects based on the ETH network that serve the financial industry (or provide financial services), but also include Bitcoin, Stellar, etc. that issue tokens and are used for payment and settlement.
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In commemoration of the fourth anniversary of Ethereum this year, someone compared IC0 with DeFi: last year, IC0 (the project party) held about 4.6 million ETH in Ethereum, and now it is 2.3 million ETH. This falling volume is allegedly referred to as the “death spiral” of IC0. Similarly, from last year to the present, the number of Ethereum held by decentralized finance (DeFi) is about 390,000, and now it is 2.3 million, which means that the locked ETH in DeFi has made up for the death spiral. According to its prediction, the locked volume of ETH will return to 4.6 million in one year.
From Bitcoin to Libra, blockchain technology has one of the most basic and universal goals - to build a new financial facility that is different from the traditional financial system and shared globally. Unlike Bitcoin, DeFi poses a greater threat to the traditional financial industry, and the creation and development of DeFi has exceeded the extent that the traditional financial industry can kill. With the maturity of DeFi and the iteration of blockchain technology, DeFi will play more and more important roles, and even the financial system that will dominate the future "code world" is unknown.
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For a big step in finance, how to take a small step in DeFi?
Although the innovative concept of DeFi impacts the existing financial model, for the traditional financial industry, these projects in the DeFi field seem to be very weak, and it is completely impossible to compete with the traditional financial industry. From the perspective of realistic conditions, compared with traditional finance, DeFi has more advantages and can complement each other to a certain extent to achieve a "win-win" situation.
On the one hand, DeFi advocates undifferentiated but conditional access (conditions on assets). The adoption of blockchain technology ensures high transparency of transaction data, irreversibility of transactions and a certain degree of resistance to censorship. Traditional finance has a long history, has a deep social foundation and covers a wide range of people (based on credit and risk control), and there may be a high overlap between DeFi users based on token assets and credit-based financial users.
On the other hand, DeFi adopts blockchain technology, which can improve the transparency of transaction data, ensure the irreversibility of transactions and a certain degree of censorship resistance. DeFi has certain advantages in preventing malicious inflation by regime subjects. Blockchain technology has the characteristics of open source code, irreversible transaction behavior, non-tamperable transaction information, open query and traceable transaction object (token). Compared with the traditional financial industry, the transparency of DeFi information has been significantly improved, and the mechanism of open source code and decentralized operation has certain advantages in preventing malicious inflation by political subjects.
