Just over a year ago, Andreeseen Horowitz’s general partner Angela Strange proclaimed that in the future, every company will be a fintech company. In the same way that Amazon Web Services made it possible for any company to become a software company, banking infrastructure as a service means that any company can, in fact, become a financial technology company.
It’s a compelling idea, but one that perhaps needs updating to take into account blockchain, cryptocurrencies, and the explosive growth of decentralized finance (DeFi) in recent months.
The relationship between crypto and the wider financial economy is as old as bitcoin itself: the genesis block of bitcoin contains the message “Chancellor on the verge of a second bank bailout”, an allusion to a Times of London headline during the darkest days of 2008-09 financial crisis. Early Bitcoin users were often recruited from the cypherpunk scene and other circles adjacent to hackers – WikiLeaks was one of the first, prominent supporter of bitcoin after being shut down from payment networks like Visa, MasterCard and PayPal in 2010 – and as the industry grew, it drew the ire of mainstream finance, which feared it would be totally disrupted. That is changing rapidly, however, with a slew of mainstream financial institutions in recent days, including Citi, Fidelity, and Goldman Sachs, releasing bullish reports or (re) opening dedicated crypto trading desks.
What is less common, at least for the moment, is the recognition of the power of DeFi.
These are services, backed by smart contracts, that allow users to lend and borrow cryptocurrencies such as ETH, DAI, and USDT from the comfort of their web browser or smartphone, whatever regardless of the country in which they were born.
Lenders earn interest on their loans, often far in excess of what they would earn by putting their money in traditional savings accounts, while borrowers can quickly access cash without approval or permission from an authority. centralized (formerly known as a local bank branch).
Already, platforms like Aave, Compound, Yearn, and CREAM host billions of dollars (USD) in cash, with the total blocked value, or TVL, in DeFi applications currently reaching over $ 36 billion. according to DeFi Pulse, which follows the sector. This is more than double what the industry was just two months ago and some 3,500 percent more than we were a year ago when there was around $ 1 billion in TVL . There is growth, then there is growth.
And yet, hurdles remain before DeFi truly enters the mainstream.
For one thing, the term ‘DeFi’ is unlikely to mean much to the average Main Street person yet, although the continued growth of blockchain apps like NBA Top Shot, Sorare, and other synthetic assets may. help raise awareness across the sector. Grimes selling non-fungible tokens of his artwork for around $ 6 million will certainly attract attention, as will Beeple’s $ 69 million auction of his pixel art sold by Christie’s Auction House.
Second, even if someone is interested in jumping into DeFi, there’s still a lot of friction in the process: you have to get into crypto (probably one of the big centralized exchanges like Coinbase or Gemini), set up and fund another wallet such as MetaMask or Argent with said crypto, exchange that crypto for the relevant DeFi token using a platform like Uniswap or Sushi, then deposit said token into the DeFi pool. All of this exchange requires relatively high fees in the form of gas, a common criticism among curious DeFi enthusiasts (although Ethereum’s upcoming upgrades may help).
That’s a lot of steps, any number of which could be further broken down into extra extra steps. In a world where mainstream consumers are used to instant gratification, that’s a tremendous amount of friction for everyone except the most dedicated people to overcome.
And yet, improvements are to come.
While a huge chunk of DeFi is currently running on Ethereum, what if you’re looking to deposit cash on a different blockchain? There are some somewhat clunky ways to do this today, like wrapping bitcoin so that it can be used on Ethereum, but new cross-chain solutions like Keep and Ren can help smooth out those rough edges. Under the hood, improved programming languages like Solidity should make it easier for developers to deploy their projects. And top-tier crypto funds, like those recently announced by Jack Dorsey and Jay Z, are expected to keep developer interest high.
All of the above should make it easier for people to participate in DeFi and pave the way for all fintech companies to become DeFi companies.
BenzingaRelated links from:
Photo via Unsplash