AC New Article: Why is DeFi still the future?

Original title: Why defi?

Original author: Andre Cronje

Original translation: TechFlow

Before we get into the details, why should we talk about finance in the first place?

Before any currency existed, barter existed. I raise chickens and you grow wheat. I give you chickens and you give me wheat. One year, my chickens don’t do very well, but I still need wheat, and I promise to give you more chickens next year. I owe you a favor (IOU).

Maybe you don’t need more chickens, but your neighbor wants them, so you can trade this favor for something else. In its most basic form, this is currency, a standardized favor that anyone willing to accept it agrees is worth a given value. Eventually, we began to measure everything with these favors.

So now I have a bunch of favors and I start to worry about getting robbed and I need a safer place to store them. So the first banks appeared (originally churches storing the books of these favors). A respected man in the community wants to start raising cattle and he asks the church to lend him some favors so that he can start his farm. The church agrees but he needs to pay back more favors than he borrowed, which is the interest he needs to pay. To secure the favors the man needs to put up the deed to the land he purchased as collateral. The community that stored the favors in the bank feels grateful because now they have more favors and the respected man is grateful because it enables him to start his business.

Finance at its core has always been about empowerment and putting idle assets to work. At some point it became harder and harder to tell if the person requesting funds was a "respectable person" due to fraud, crime and an evolving society. In today's almost dystopian world we are all reduced to a credit score. A number that determines if we are a good candidate for finance. If you're new to the system, you have what's called a "thin file" in credit bureau lingo, which means there's not enough data to judge you, which means it's hard to get a loan, and even if you qualify, the interest rate will be terrible. You also need to have an existing relationship.

This brings us to why decentralized finance (DeFi) exists. DeFi doesn't care, DeFi doesn't judge.

Everyone is treated equally according to the rules of the system, and those rules are open and transparent for everyone to see. A traditional bank turned you down for a home loan? You might not even know why. DeFi turned you down for a loan? You'll know exactly why.

Other than labor and goods, interest (or yield) is one of the purest forms of income. There will always be someone who needs capital to start a new business, or someone who is in trouble and just needs some help to get through the winter. This form of income is infinitely scalable and pure, it does not rely on any false incentives, it does not rely on any external factors, it is just a simple business of supply and demand.

The next form is barter, going back to our first paragraph, I have chickens and you have wheat. In today's connected world, barter is still at the core of everyday business, but it can be difficult to find a counterparty, or it can be difficult to find what you want. This is why general markets come into existence, a place where people come together every week to buy, sell and exchange goods. An automated market maker (AMM) is a barter platform, just like in a market you need to pay a small fee to sell your goods, in an AMM, the provider charges a small fee. This is also a pure form of income (or yield). It can be infinitely scalable as long as there are people willing to buy and sell.

In DeFi, you don’t need to be an accredited investor to participate in this market, you don’t need to live in New York, you don’t need to work on Wall Street, there aren’t any backroom deals or brokers, what you see is what you get.

Look at the seven largest industries in the world:

· Life Health Insurance

· Oil Gas

· Real Estate

· Pension Funds

· Auto Sales

· Direct Insurance

· Commercial Banking

These are the largest industries in the world, even if most people can’t participate in them, DeFi eliminates all of that, and anyone who is willing to try can participate. This is probably the most important cornerstone of any economic growth. All others stem from this. Trading and lending are the cornerstones of all the above industries.

Sure, some versions are distorted by false incentives, inflated returns, unsustainable revenues, but this is true for traditional or decentralized versions. This in itself does not fundamentally eliminate the beauty of pure, transparent, and fully democratized access.

DeFi is a core building block of a decentralized society, and this is just the beginning, there is more to do. Until all seven industries mentioned above are on-chain, fully open, transparent, and accessible to everyone, we have more work to do.

All humanitarian efforts happen when we as a collective have enough to share. And having enough to share can only be achieved through DeFi.

Original link