A central problem

Needless to say, just like with crypto-currencies, there is raucous support from those who are anti-establishment.

They are not only opposed to the high – very real – transaction and agency costs of traditional finance, but to the idea that they must rely on a sanctioned system. These groups range from innovators to more complete disruptors and tech revolutionaries to libertarians and, further afield, extremists and criminals for whom truly anonymous and untracked transactions are made. extremely desirable.

And this is one of DeFi’s central challenges: regulation.

Even legitimate governments that respect the rights of their citizens are concerned about protecting the integrity of their tax base and the security of their financial systems. They are rightly cautious about transferring control to the Internet.

One of the most notorious of these libertarians is an American by the name of Erik Voorhees who founded the cryptocurrency platform. Metamorphose (No boring names like Fidelity Mutual or Bank of Nevada for these guys.).

Vorhees calls ShapeShift a “decentralized autonomous organization” and at its More than 500,000 followers on Twitter (without relying on the old lame notion of MSM or a stock market announcement), he said that “ShapeShift’s vision is to build an enduring, borderless financial system. “

“Let’s be blunt,” he continued. “Money and finance should not be exploited by coercive government among free people. They must – like language, mathematics and love – emerge voluntarily and without central rule. »Erik is not a parent to Jason, another major disruptor.

Know your customer

As Gary Silverman wrote in the Financial Time, “The fate of a key pillar of the anti-money laundering regime is of particular concern: the obligation for financial companies to ‘know your customer’ (KYC). The KYC requirement means that intermediaries are expected to know the names of their users, monitor their transactions, and report activities that raise suspicions of money laundering to authorities.

Global regulators are already alert and alarmed. The Director of the US Treasury Janet Yellen and the President of the European Central Bank Christine Lagarde were explicit in pointing out serious concerns.

Yet like fintech revolution, DeFi’s great opportunity – whether it’s blockchain solutions, smart contracts, or tokenization – is that it brings tremendous innovation and the potential to actually improve security – with simpler, better governed systems. – and efficiency.

Also, as with fintech, not all DeFi supporters are anarchists. The Financial Time cited Kristin smith, executive director of the Blockchain Association, an industry lobby group: “DeFi asks all kinds of unique public policy questions. The crypto community has ideas on how to [respond]. Our request to policy makers is: let’s take the time to learn more about it. “

All or nothing?

Yet DeFi is clearly a movement of note in the future of finance. The Economist recently dedicated a major problem to the theme, covering trading on exchanges and issuing loans and taking deposits through “self-executing agreements called smart contracts”.

According to the newspaper, the value of digital instruments used as collateral rose from almost nothing in early 2018 to $ 90 billion. About $ 2.2 trillion in transactions were processed in the second quarter, roughly the same amount Visa went through.

The innovation, technology and intensely customer-focused solutions offered in DeFi can undoubtedly improve financial services.

It is not an all or nothing meeting either. Just as fintech has been adopted into conventional systems, DeFi platforms and solutions can – and no doubt will – be integrated into existing ecosystems.

Traditional banks have anti-money laundering and KYC systems which are essential for regulatory approval and which can provide an impression to DeFi. DeFi evangelists will no doubt say that misrepresents DeFi. This is not the case.

It helps harness the benefits for all of society – including those that can be scammed by shady gamblers, civil society undermined by tax evaders, or their livelihoods threatened by organized crime if the financial system were to fail. become a free trade. all.

Andrew Cornell is editor-in-chief of bluenotes



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