The School of Crypto Finance : The #DeFi Movement
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Launched in late 2018, the #DeFi Movement, or Decentralized Finance, aims to create a truly decentralized financial system, one which doesn’t need the traditional banking system. It is essentially just conventional financial tools built on a blockchain — specifically Ethereum.
It is mostly predicated on open-source protocols or modular frameworks for creating and issuing digital assets and are designed to confer notable advantages of operating on a public blockchain like censorship-resistance and improved access to financial services.
The Decentralized Finance (#DeFi) movement launched late 2018, as a network of fifteen Ethereum-based projects with the unified goal of creating a more open financial system. Initial member projects included MakerDAO, Origin Protocol, and Paradigm. Later entrants included Kyber Network and Compound.
The network also solidified some guidelines for joining. These explicitly state that to participate in #DeFi, the project is building on or building a service for a decentralized blockchain, within the finance industry, adhering to common standards and pushing for interoperability, and must align with the core principles of #DeFi. The principles talk about financial inclusion, accessibility, and transparency. Currently, members of #DeFi include decentralized exchanges, wallets, stable coins, prediction markets, liquidity protocols, and many others.
What does DeFi mean for blockchain: The initial group of projects within #DeFi are mostly based on Ethereum. But this doesn’t mean that a decentralized finance ecosystem can’t flourish across all blockchains. In fact, doing so would return the convergence of blockchain and finance back to Satoshi’s original vision.
Why it matters
Decentralized finance moves away from the need for external validation of blockchain and cryptocurrencies. #DeFi doesn’t require banks and financial institutions to incorporate the technology.
It shows that the crypto world is flourishing on its own, without the need for external validation or regulation. #DeFi is creating new channels for adopting crypto. It’s encouraging a new wave of financial entrepreneurship which would be stifled in the world of traditional banking.
#DeFi is based on peers exchanging digital currency online. Aside from the obvious need to onboard to crypto from fiat, it doesn’t require the intermediation of a financial institution. It’s the closest thing to Satoshi’s vision.
What people are saying
Brendan Forster, Head of Growth Ops at Dharma Labs, proposed the following core principles of the #DeFi movement:
- Interoperability and Open Source — Members of DeFi take interoperability into account when building their projects. This helps strengthen the compounding effects of all our projects as a whole. Open sourcing helps us reach this goal by allowing us to collectively understand how all of our products can be woven together on a technical level.
- Accessibility and Financial Inclusion — We strive to create a financial system that is accessible to anyone with an internet connection. We believe in a world where value flows freely, regardless of one’s geographic location.
- Financial Transparency — We believe that financial services should not be built in opaque silos, but rather that market-level information should be transparent to all participants while still preserving individual privacy.
Varun Deshpande on Twitter says “ #DeFi is being built on Ethereum because it’s the only place it can be built currently. Bitcoiners have great ‘plans’ for lightning and sidechains, but it’s too little too late. That ship has sailed. There is no going back now.”