In less than two decades, DeFi has precipitously gained real world legitimacy and adoption on a global scale. So much so that experts predict that Bitcoin alone (the first but only one of 4,000+ cryptocurrencies in DeFi) will have the same rate of adoption of the internet by 2025 , at least 3.5 years faster than the internet. Indeed, many of the greatest critics of DeFi have now done a 180, with publications from the like of Forbes reporting on how many have dramatically underestimated the power of DeFi . Such a pro-DeFi article from mainstream media would have been unthinkable even earlier this year.
Yet despite the incredible surges in adoption, DeFi is still foreign to many newcomers who are only just starting to dip their toes in the waters of DeFi, asking: what exactly is DeFi? And why does it matter anyway?
What is DeFi?
DeFi (short for “decentralized finance”) is a catch-all term to describe all the financial services that anyone can access without the need to go through centralized institutions and intermediaries, like banks, brokers, and actuaries. In lay terms, it’s like banking without a bank.
Many newcomers are surprised to learn that DeFi services are not limited to holding currency safely, but include exchanging currencies, automated payments, transferring capital, spot and futures trading, high-yield staking in lieu of savings, and accessing liquidity and loans, just to name a few.
But perhaps the most remarkable feature of DeFi is that it allows absolutely anyone to access financial services, while at the same time, ensuring that no single entity has more power to govern or control the financial network than anyone else; hence the “decentralized” part – because the network governance is spread across the network rather than being concentrated in the hands of just a few actors.
In 2008, Satoshi Nakamoto unveiled bitcoin, the world’s first cryptocurrency to use distributed ledger technology (DLT) run on computers and cryptographic messaging to achieve permissionless and tamper-proof consensus. Today, DeFi has evolved well beyond bitcoin and its DLT (called the blockchain), to include over 4,000 different cryptocurrencies, different DLTs, and the use of smart contracts to automate more complex transactions digitally.
This is all just to say that DeFi has found a way to use computers to replace intermediaries in finance and transactions, and every day it’s getting better and better at doing just that.
The is most important for the end user, particularly individuals and small businesses, because it means they can have greater control over their assets and finances than they what was available to them through traditional finance in the past.
But the DeFi ecology still needs to develop to maturity. In fact, one of the most frustrating aspects of DeFi today is the sensationalism, noise and superficial technologies flooding the space, trying to cash in on the hype, and standing in the way of the true purpose of DeFi: to offer real solutions to real world problems around finance and transactions.
While it may be easy to buy into the hype surrounding DeFi, there’s a constant need for reality-checking, to remember what it’s all about: Real World DeFi.
Real World DeFi, what does that mean?
Real World DeFi is our philosophy that DeFi technology should be purpose-built to solve real world problems and to impact real world change.
For instance, some problems in centralized finance today that deserve to be front of mind in DeFi innovations, include the fact that only the largest businesses get direct access to liquid capital markets, that most users depend on banks for their capital needs, and the limited access to competitive financial products given to smaller businesses, for instance.
Real World DeFi must solve these problems – to make finance more accessible to all regardless of their status or background, to give users the power to manage their own capital needs, and the ability to access greater financial products and services.
We have coined what we call the “Real World DeFi Equation” to capture this Real World DeFi philosophy, and describe it as follows:
Real World DeFi = stability, accessibility, and equality.
So, to achieve this Real World DeFi philosophy, financial products and services must offer users the stability to store their wealth and assets safely, accessibility for users to move their wealth and assets however they please, and equality for users to receive equal treatment within the protocols of each network, without unfair preference or disadvantaged.
We believe that the most critical part of this will be how we bridge real world assets with DeFi.
Taking real world assets to the next level
In law, possession is nine-tenths of the law, which is to say that physically holding property is often the greatest trump card against a great deal of counterarguments. Likewise, when it comes to DeFi, it does not get any more “real” than “real world assets.” Through the process of tokenization, asset owners can take any given real world asset, like a house, a car or an invoice, and record (or “mint”) that asset and its ownership rights on a distributed ledger.
Once assets are tokenized, this then gives asset owners the option to leverage those assets digitally and financially. In traditional finance, leveraging assets would have been a difficult, if not expensive and impossible, process, requiring guarantees, mortgages, and often excessive interest rates. But with DeFi, tokenization is just a stepping-stone for any individual or enterprise to then leverage those existing assets and access a new world of financial opportunities.
This is exactly where Centrifuge plans to make its mark in DeFi.
(Real World) DeFi cannot exist without Real World Assets – Centrifuge doing just that!
Centrifuge is the first, largest and most successful real-world asset platform in DeFi.
Centrifuge offers to bridge assets like invoices, real estate, and royalties to DeFi, to reduce the cost of capital for small and medium-sized enterprises, and to provide DeFi investors with a stable source of yield, free of the volatility of crypto assets. Borrowers can also finance real-world assets without banks or other intermediaries.
Offering services like these will be essential to achieve our philosophy of Real World DeFi. Because how we bridge real world assets with DeFi will be the next greatest feat to extend the reach of DeFi in reality. Both for users today, and for future generations to come.