Decentralized finance or DeFi is a rapidly growing open finance ecosystem and parallel digital financial industry built on blockchain technology
DeFi aims to provide access to financial services to anyone with an internet connection and to provide services free of ‘unnecessary’ intermediaries and their costs and fees. Payments, asset exchange, loans and even insurance are peer-to-peer services in DeFi, often on platforms that take miniscule or zero fees for providing the software infrastructure needed to facilitate the service.
In 2021 alone, DeFi’s userbase has almost quadrupled, from just over one million to nearly four million users. The total value locked in DeFi platforms, a popular metric that shows how much money individuals have actively tied up in DeFi services, has gone from approximately USD$13.7 billion on Nov 1, 2020 to over USD$266 billion today. Top decentralized exchanges such as Uniswap do hundreds of millions of dollars daily in trading volume.
This is no longer merely an experiment.
It is a global ecosystem of millions of people and billions of dollars. There is tremendous, broad-spectrum opportunity ranging from arbitrage and market making for innovative trading desks to building DeFi service offerings and DeFi/TradFi bridge infrastructure for forward-looking banks.
Banks and other traditional finance companies simply cannot afford to overlook DeFi, which directly threatens to annex great swaths of market share from markets such as payments, asset management, and lending.
The shift is dramatic, and it's happening now.
This isn’t a long-term journey of banking customers getting use to new technologies and services, the companies that are offering DeFi financial products are here now and they are scaling and building credibility. Regulators won’t protect traditional banks if they feel they are underserving customers’ needs through lack of innovation, consumers are ready for low cost, instant and convenient solutions for their financial needs.
DeFi isn’t just for early adopters of crypto investing, it’s going mass market and the banks will lose market share in the near-term.