Decentralized finance (DeFi) is the movement iin the blockchain applications space that leverages decentralized network technology to disrupt and force a transformation of old financial products into trustless and transparent protocols that facilitate digital value creation and dissemination with fewer or no intermediaries.
It is a widely understood and accepted that blockchain technology lays the foundation for a trusted digital transactional network that, as a disintermediated platform, fuels the growth of marketplaces and secondary markets due to new synergies and co-creation via new digital interactions and value-exchange mechanisms. While blockchain itself provides the technology constructs to facilitate exchange, ownership, and trust in the nework, it is in the digitization of value elements where asset tokenization is essential.
Although the traditional finance market, instruments, exchanges, and overall governance and centralized, they also are fragmented and laden with inefficiencies because the coordination of the linked business processes and movement of value are divided among a variety of intermediaries. This traditional ecosystem continues to add additional intermediaries or trusted third parties every time it encounters an anomaly that either results in a sizable fraudulent event or loss of value at scale, or a regulatory event due to the anomaly.
So, while the regulatory landscape transforms as it attempts to plug ever anomaly and ensure the systemic integrity of the financial system, it also createds complexity in the system and paves the way for additional anomalies and inefficiencies. DeFi aims not only to simplifiy the complex financial ecosystem but also to reduce barriers by lowering costs, increasing transparency, reducing the number of intermediaries, and overall democratizing the creation and consumption of the financial system.
Many DeFi projects begin with digitizing current assets, flows and interactions, and codify a business function in the guise of smart contacts to adhere to regulations and regulations and rules that govern value movement in the form of financial instruments such as securities, loans, derivatives, and even (digital fiat.
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Nitin Gaur is a Director of IBM’s Blockchain Labs, responsible for instituting IBM’s organisational understanding around blockchain and industry specific applications.
via Corporate Investment Times April 2020 Issue