Article by KOSEC – Kodari Securities CEO, Michael Kodari.
DeFi defined
De-centralised Finance (DeFi), in general terms, is a concept emerging from blockchain utility, which uses de-centralised ledgers of information to remove any prior reliance on central banking authorities. Operating through its own dedicated and de-centralised community of processors, a blockchain DeFi project provides immutable security and fast transaction ability to its network of users.
By ‘removing the middlemen’, DeFi protocols confer a higher degree of efficiency when it comes to transacting value. DeFi also confers greater transparency for financial transacting and holds the potential to enable greater access to financial services amongst the 1.7 billion people without bank accounts.
Anonymity, regulation and risks
As a relatively nascent technology, blockchain ledgers have raised questions as to whether the anonymity it provides would serve only to attract illegal activity. Similarly, a DeFi protocol would also present as a platform through which dubious financing could be carried out without a central authority to vet against it.
DeFi protocols have seen a rapid uptake among cryptocurrency investors and enthusiasts as an exciting and novel idea. However, this interest has garnered just as much attention from market regulators, especially in the case of national bans on cryptocurrency trading, as seen within countries like India and China.
Transactional transparency
Apart from the issues of security and legal compliance, issuers and lenders within traditional finance have yet to embrace and leverage the many objective benefits brought about by blockchain ledger technologies.
Among such benefits include providing a marked degree of transparency and efficiency compared to traditional finance methods. To dig into this concept deeper, DeFi removes the need for intermediary processing, which otherwise focuses on tasks like background checks, application vetting and other anti-laundering procedures.
Instead of requiring final approval from loan managers and bank employees, any similar transaction occurring on a DeFi protocol will simply be validated by authorised nodes on its network.
This ability to maintain transparency through its network has been touted by some as the ‘ideal solution’ to ensure regulatory malpractice can be rooted out — thus preventing market calamities like the 2008 global financial crisis from happening.
A revolutionary new frontier
DeFi presents a revolutionary new frontier for opening fresh opportunities in improving the global finance markets. From a utility perspective, its technology alone presents improved speed and security to facilitate financial transactions — internationally. Moreover, this use case alone is a highly-developed feature that sees constant pursuit of uptake and improvement by popular cryptocurrency projects such as Stellar (XLMUSD).
Additionally, DeFi sets a fascinating new precedent for…
Read More: securitybrief.co.nz