Why Defi is tomorrow’s $5.59 trillion opportunity.

2020 was quoted as the “Year of Defi”. I believe the next decade will be the “Decade of Defi”. This article is not written to serve as a hype of a particular project or the defi space. It is simply to serve as a reminder of why decentralized finance is here to stay and potentially one of the largest opportunities we have today.

If you don’t know what Defi is? I would highly recommend watching this video by Andreas.

Essentially you could call Bitcoin, Ethereum and other cryptocurrency platforms “Defi”. Bitcoin was the first successful monetary network that was completely decentralized and Ethereum was the first successful smart contracts platform that has enabled most of the Layer 2 Defi applications we know today. That being said it is still a world away from being part of our economy and is used for speculation on the most part by a select few people. Why is Defi a $5.59 trillion opportunity?

Below I have gone through the 3 reasons I support my theory.

  • Changing our financial services, What are the financial services? Insurance, asset management, loans, banking, debt, investment, custody and others. The internet has already changed our financial system with the likes of Paypal, Stripe and other major payment providers giving the developed world access to a new internet economy. These companies were extremely successful in introducing an outdated financial system to the internet (which is why they are worth billions) but what could happen if the internet had its own global financial system? That in a nutshell would be Defi. All the current largest providers of these services are still relying on legacy technology plugged into the internet and have not explored providing these services directly through decentralized platforms reducing infrastructure costs dramatically. If Defi is successful in integrating with the current financial infrastructure it has the potential to replace our entire financial infrastructure much as the computers and the internet did.
Photo by Jeffrey Blum on Unsplash
  • Inclusion of the underbanked, I might say this statistic every day to everyone I know. “2 billion people don’t have access to basic financial services”- This statistic is unreal that we still are miles from a completely connected world. There’s a further population who does have access to poor outdated banking or finance options, this will limit their growth and the expansion of enterprise. The barrier that will need to be met to overcome this will be the cost of acquisition, can defi lower the cost of acquiring a customer? A traditional bank wouldn’t waste its time with a customer in a third world country providing $1 of value in which it’s cost them $50 to acquire, that’s a poor business model. If Defi can help reduce infrastructure costs and enable new platforms to reduce this cost it will speed the rate of financial inclusion thus introducing more participants to the global economy.
  • Legitimacy and growth, Defi is growing rapidly not just speculation, we’re seeing more user growth. Platforms like Uniswap, Sushi, Yearn.Finance all of the proof that protocols can run at scale on decentralized systems. Nevertheless this is all for speculation and isn’t really that effective in real-world use cases. It does not mean that asset speculation is the future of defi, as it has proven to be a great marketing tool for defi platforms. In addition, it incentivizes the best developers in the world to work on these projects and build successful applications. Yield farming is great but there is a real-world out there and as the markets come down, the speculation dies off I would really expect to see many projects address real-world use cases such as insurance, debt or real estate. The growth in defi will continue you can no longer deny its potential for disruption.

In conclusion, Why do I believe is defi a $5.59 trillion opportunity? Because that's what the financial sector is currently worth. The internet disrupted finance and if Defi can bridge that gap by increasing inclusion it will not only assist the growth of the financial sector but will change it forever. Financial companies will become technology companies and fight for new users in the same way tech companies do. This distribution of services and competition will increase the quality of services across the board.

I am always looking for new exciting fintech Defi projects and companies. Please connect with me below and reach out if you have anything interesting.

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