Decentralized finance (DeFi) and traditional finance are perhaps not as oil-and-water as most think.
There are few topics as controversial in the crypto sector as decentralized finance. Many believe it is the future of finance – removing middlemen will lower costs, unleash efficiencies and create a more transparent, resilient and better-distributed framework. Others (myself included) find the idea terrifying – a financial system without oversight or an off switch is even more vulnerable to manipulation and error than one that is legally accountable to the user and can be fixed when things go wrong. If a DeFi platform can be “fixed” when things go wrong, just how decentralized is it?
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An example of this happened this week: decentralized exchange Bisq, which allows users to trade crypto assets anonymously, suffered a hack involving the theft of $250,000. To prevent a greater loss, the platform developers switched it off.
Obviously, from the users’ point of view it is a good thing Bisq did so. But Bisq also showed the world that it can, which calls into question the concept’s resilience – this time it was for the users’ benefit, but who’s to say that will always be the case? (No aspersions cast on the Bisq team, it’s the concept I’m talking about here.)
While I am personally skeptical of the concept, I am very intrigued by the potential impact DeFi could have on traditional finance. The two are not oil and water, and the automation and transparency of some innovative market functions emerging from the sector could broaden the scope and reach of the…