The what of Decentralized Finance (DeFi) matter’s less than the why.
As I acquire, grow, and exit companies, it’s crucial that I understand key societal and technology trends that will massively disrupt industries. DeFi is one of those trends.
It will massively shake the financial industry, in nearly every sector, for the better.
What is DeFi?
The what is boring, unless you’re a little nerdy and into this stuff.
Banks are a centralized finance system. They’re the middleman to get money from place A to place B while charging fees along the way. With decentralized finance, the financial products are available on a public decentralized blockchain network open to everyone.
DeFi removes intermediaries from complex transactions.
Why does it matter?
These types of applications will have a significant presence in lending, insurance, exchange, stablecoins, and in all areas of finance.
According to Peter Diamandis,
“While these technologies alone do a lot to increase democratization, dematerialization, and access in our society, the introduction of application governance tokens and profit-sharing tokens portends the arrival of the deepest and most profound transformation of them all: a new global commons.”
“The new global commons is the economy of an abundance-driven, democratized, and dematerialized society.”
How will it change my business?
It removes financial complexity to focus on providing a better product or service and get paid in exchange.
In the article DeFi Is the New Lemonade Stand, Andrey Sergeenkov writes, “there is no need for intermediaries like banks, regulators or tax agencies trying to meddle in the lemonade stand. Everything occurs between the person operating the stand and their customer, creating a robust yet elegant financial construction.”
For your business, it’ll impact:
- How you get lines of credit.
- Financing assets.
- How you pay vendors who give credit terms.
- The mode in which customers pay you (without transfer fees).
- Reduction in exchange rate risks.
Be prepared for financial change and capitalize on the impact early on.
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