In order to function effectively, society has long depended on people who have confidence in their institutions. Thanks to the COVID-19 pandemic and extensive leadership failures, that faith has been tested like never before.
Nowhere is the decline in confidence more evident than in financial services. In its 2021 Trust BarometerNobleman found it that only 53% of US respondents said they trusted those in the US to “do the right thing” – 5% less than in the 2020 survey. You can see this in the battle between Main Street and Wall Street, which took place in January’s GameStop rally. More than just ‘Short press, ”The rally highlighted the fact that many younger investors simply don’t believe in financial institutions.
Trending away from institutional authority is also evident in the explosive growth of decentralized finance, or DeFi. By using decentralized applications on the blockchain, DeFi enables individuals to borrow or borrow money, trade coins and earn interest on savings. Their transactions are governed by smart contracts embedded in the software; no bank, brokerage, or exchange is required.
With a digital first generation, DeFi becomes the standard
To illustrate how quickly DeFi has risen, examine the total value locked, or TVL, poured into the DeFi sector. TVL is the best way to chart DeFi’s success as smart contracts usually require a counterparty to provide collateral for each transaction. In mid-March, that was nearly $ 59 billion locked in DeFi. A year earlier, that figure was about $ 500 million.
The general crypto market – powered by Bitcoin BTC) – is now worth over $ 1 trillion, so there’s a long way to go before DeFi makes headlines. However, remember: It took Bitcoin nearly 10 years for institutional investors to actually start buying – and it looks like it will be half that time for DeFi to reach a similar penetration.
Why? Because younger investors – like the GameStop traders – understand the concept of digital scarcity and embrace the fact that non-physical assets have value. That’s why they are buy up intangible tokens as a way to trade digital assets. The best-known example of the NFT phenomenon was the Christie’s auction last March digital collage by artist Beeple – bought for nearly $ 70 million using cryptocurrency.
What has been a trickle of crypto activity promises to become a torrent once most of the baby boomers retire. The groundbreaking event, now underway, represents one of the greatest transfers of wealth ever. According to “Big Four” accounting firm PwC, it will be an estimated $ 59 trillion in wealth Action from retiring Boomers to their digital native beneficiaries by 2061.
It is this new generation that will look for ways to invest their legacy – and choose the systems and platforms they can place their trust in. Given the choice, Millennials and Gen Zs will always choose the investment option that is cheaper, more accessible, and available 24/7.
As DeFi takes off, you can expect old settings to fight back
Since banks are banks, you can expect them – along with other old institutions – to fight hard to defend their territory. They know that in order to stay competitive, they need to increase service hours, shorten settlement times, and improve user functionality.
They are already starting to integrate smart contracts and other DeFi technologies into existing platforms – both to increase efficiency and to meet market demands for greater transparency and customer privacy. In a February white paper, issued by the Depository Trust & Clearing Corporationthe DTCC suggested shortening the settlement cycle for US equities from two business days to one.
Even then, the planned implementation of the DTCC plan could take two years – and still lag behind the immediate effect of crypto. In a world rapidly evolving towards a 24/7 model, securities issuers holding on to industry laggards will soon be left behind.
The road ahead is promising, but not without bumps
While technology for DeFi is advancing rapidly, it will take time for the opportunities to be where they need to be for widespread adoption. The network costs required to trade on decentralized exchanges such as Uniswap are still high (although that is expected to decline over time).
There’s no denying that it’s possible to buy or trade digital assets 24 hours a day, with immediate delivery, or borrow on a peer-to-peer level – and dictate your own terms.
There are still about 1.7 billion people who are considered Unbanked – and DeFi is committed to providing a full range of banking services to anyone with an Internet connection and mobile phone.
This article does not contain investment advice or recommendations. Every investment and trade move carries risks, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are solely of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Mitchell Demeter is a serial entrepreneur who launched the world’s first Bitcoin ATM in Vancouver, Canada in 2013. Mitchell is now president of Netcoins, a trading platform that aims to make it easier to buy, sell and understand cryptocurrency. He has appeared in publications such as Wired, Time, HuffPost and Forbes and is a regular contributor to Fast Company and Entrepreneur.