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Market Overview

DeFi Is poised To Make Every Company A Fintech Company. The Token Revolution Is Here.


A little more than a year ago, Andreeseen Horowitz general partner Angela Strange proclaimed that, in the future, every company will be a fintech company. In the same way that Amazon Web Services made it easy for any company to become a software company, banking infrastructure as a service means that any company could, in effect, become a fintech company.

It’s a compelling idea, but one that perhaps needs updating to take into account blockchain, cryptocurrencies, and the explosive growth of decentralized finance (DeFi) in recent months.

The relationship between crypto and the wider financial economy is as old as bitcoin itself: the bitcoin genesis block contains the message “Chancellor on brink of second bailout for banks,” an allusion to a Times of London headline during the darkest days of the 2008-09 financial crisis. The earliest bitcoin adopters were often recruited from the “cypherpunk” scene and other hacker-adjacent circles—WikiLeaks was an early, prominent supporter of bitcoin after having been closed off from traditional payment networks like Visa, MasterCard, and PayPal in 2010—and as the sector grew it attracted the ire of traditional finance, which feared being totally disrupted. That’s quickly changing, however, with a string of mainstream financial institutions in recent days, including Citi, Fidelity, and Goldman Sachs, publishing bullish reports or (re)-opening trading desks dedicated to crypto.

What’s less mainstream, at least right now, is the recognition of the power of DeFi.

These are services, enforced by smart contracts, that allow users to lend and borrow cryptocurrencies like ETH, DAI, and USDT from the comfort of their web browser or smartphone, regardless of which country they happened to be born in.

Lenders earn interest on their loans, often well exceeding what they’d earn parking their money in traditional savings accounts, while borrowers can quickly access liquidity without the approval or permission of a centralized authority (formerly known as a local bank branch).

Already, platforms like Aave, Compound, Yearn, and CREAM are hosting billions of dollars (USD) worth of liquidity, with the total value locked, or TVL, in DeFi applications currently reaching more than $36 billion, according to DeFi Pulse, which tracks the sector. That’s more than double where the sector was just two months ago and some 3500 percent higher than where we were a year ago when there was roughly $1 billion in TVL. There’s growth, and then there’s growth.

And yet, hurdles remain before DeFi truly breaks out into the mainstream.

For one, it’s unlikely the phrase “DeFi” means much of anything yet to the average person on Main Street, although the continued growth of blockchain apps like NBA Top Shot, Sorare, and other synthetic assets could help bring awareness to the overall sector. Grimes selling non-fungible tokens of her artwork for some $6 million will certainly attract attention, as will Beeple’s $69 Million auction of his pixel art sold by Christie’s Auction House.

Secondly, even if someone is interested in jumping into DeFi there’s still a lot of friction in the process: you must on-ramp into crypto (likely at one of the large, centralized exchanges like Coinbase or Gemini), set up and fund a separate wallet such as MetaMask or Argent with said crypto, swap that crypto for the relevant DeFi token using a platform like Uniswap or Sushi, and then deposit said token into the DeFi pool. All that swapping requires relatively high fees in the form of gas, a common criticism among the DeFi curious (although upcoming improvements to Ethereum may help).

That’s a lot of steps, any number of which could be broken down even further into further additional steps. In a world where mainstream consumers are used to instant gratification, that’s a huge amount of friction to overcome for all but the most dedicated people.

And yet, improvements are coming.

While a huge chunk of DeFi currently runs on Ethereum, what happens if you’re looking to deposit liquidity on a different blockchain? There are somewhat clumsy ways to do that today, such as wrapping bitcoin so it can be used on Ethereum, but new cross-chain solutions like Keep and Ren may help round out these rough edges. Under the hood, improved programming languages like Solidity should make it easier for developers to deploy their projects. And high-profile crypto funds, like the kind recently announced by Jack Dorsey and Jay Z, should make it so that developer interest remains high.

All of the above should make it easier for people to participate in DeFi and pave the way for all fintech companies to become DeFi companies.

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