EDITOR ’ S QUESTION
DAVID BEN KAY , PRESIDENT AT FUNCTION X FOUNDATION
DeFi is creating a paradigm shift in traditional finance ( TradFi ), basically by removing the need to go through intermediaries – like brokers and banks – and thus enabling individuals to deal directly with their finances . This harkens back to the initial principles underpinning the Blockchain and cryptocurrency . DeFi and its attendant DApps have expanded the accessibility to financial products without the need for intermediaries . This is particularly game-changing in those markets where a significant portion of the population has been unbanked or underbanked and , in those markets where the fiat is devaluing and highly volatile .
Removing intermediaries , at least in theory , should also reduce the transaction costs compared to TradFi . This has at the same time presented a challenge for DeFi to reduce gas fees , the Blockchain analogue to TradFi ’ s transaction fees .
It ’ s axiomatic that governments and their regulations lag behind technical innovation ; the catch-up can often be ham-handed and clumsy . Also , unfortunately , what has become the norm , or at least a growing trend globally , is for any issue that governments encounter to become politicised . Political parties seem to feel the need to take a position on everything , sometimes with a knee-jerk reaction of simply opposing what the other side is promoting . Exacerbating that political tension is the role of lobbyists , groups paid by ‘ interested parties ’ to persuade politicians to take a particular position regarding regulation that protects or promotes a particular group ’ s interests . In this particular instance , you have some established TradFi groups , say banks , insurance companies and investment firms , and their lobbyists opposing any innovation that might threaten their market share .
This disruptive scenario has prompted the creation of some strange bedfellows . Risking being left behind , some
TradFi players have responded to the challenge that DeFi presents by creating cryptocurrency products , like the BTC and ETH ETFs – as well as pursuing a growing interest in tokenization of real-world assets . At the same time , risking being regulated out of business with heightened licensing requirements , we ’ re seeing a growing number of crypto companies partnering with TradFi institutions . The best example of this being Coinbase partnering with BlackRock , forming Coinbase Prime . Likewise other TradFi companies are forming so-called noncustodial exchanges – EDXs , using a third-party custodian – enabling institutional and retail investors to engage in crypto trading .
Maybe this evolution is inevitable given the relative greater power of centralised institutions , like governments and their more influential ( richer ?) constituents , compared to the more decentralised players in the crypto world . But given the anarchistic , off-the-grid philosophical roots of Blockchain , will Blockchain crypto OGs and those attracted to those philosophical roots , just go with the flow or will those who feel that the crypto world is being co-opted come up with alternatives that go back to their philosophical roots ?
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