Decentralized Finance - Description

The decentralization of financial services refers to the elimination – or reduction in the role – of one or more intermediaries or centralized processes that have traditionally been involved in the provision of financial services. Applications that decentralize along all three of these dimensions (risk-taking, decision-making, and record-keeping) have yet to achieve economically significant scale. Technologies that facilitate decentralization along one or two of these dimensions may have a noticeable economic impact. There are already examples emerging of decentralization in payments and settlement, capital markets, trade finance, insurance and lending.

There is a view that Distributed Ledger Technology (DLT), such as Blockchain technology can reduce transaction costs, generate distributed trust, and empower decentralized platforms. It is a base for a new foundation for decentralized business models. As relates to the financial industry - blockchain technology enables the establishment of decentralized financial services, which are:

- Innovative

- Borderless (Transnational)

- Interoperable

- Transparent

- Not always cheaper

DeFi is a revolutionary tool for asset management. DeFi services have the potential to broaden financial inclusion (for unbanked people), facilitates open access, encourages permissionless innovation and provides new opportunities for businesses and innovators.

It is absolutely obvious already today, that DeFi may reshape the structure of modern finance and create a new landscape for businesses and innovation.

Financial institutions have played important roles in mediating and structuring economic transactions that would otherwise be difficult to execute due transaction costs, due the lack of trust between transactions parties, due lack of the access to technologies. Digital economy, meaning blockchain technologies has started to take up some roles traditionally played by important conventional financial institutions like banks, payment institutions.

Blockchain technology empowered a new trend centered around decentralization and disintermediation. Blockchain technology eliminates the need for intermediaries in financial transactions, as it facilitates peer-to-peer transactions through distributed trust and a decentralized platform. One of the critics that goes to centralized financial system, is that financial institutions such as banks, payment institutions such as PayPal, being an intermediary and “controller” of a financial transaction, rises to dominance, and accumulates disproportionate market power and profits. In a decentralized financial system, in contrast - financial transactions are facilitated not by centralized institutions, but by decentralized peer-to-peer networks.