What is DeFi, and could it upend finance as we know it?

The crypto industry wants to upend the giants of finance. And they have a word for their revolution: “DeFi.”

Deposit into a savings account or buy insurance,   like a bank. that’s the promise of defi,   defi services have attracted  billions of dollars in funds,   it will become an even bigger industry,   but the crypto winter of 2022 has  billion-dollar projects went belly up, and  investors lost hundreds of millions of

Dollars   to cybercriminals exploiting weaknesses in various  defi platforms. so what is defi exactly? and does   the term defi – short for decentralized finance –  was first coined in a group chat on the messaging   brainstorm amongst software developers,   envisioned network of financial services   built on

Blockchains – that would cut out the  with traditional finance, your funds are  stored and managed by centralized institutions,   like banks. these firms make money by lending  out your cash and charging interest on top of   the loans. they also collect various fees and  the modern payments system is riddled with  third parties who

Pocket a cut from daily   movements of money. for example, retailers are  required to pay interchange fees – sometimes   in the land of defi, new infrastructure is being  built that takes these banks and institutions out   of the equation. anyone with a computer can create  some software and launch their own financial  

Service on a blockchain, meaning the barrier to  carol alexander is a finance professor in the   whether it’s taking people’s  crypto and giving interest   one of the most popular applications of defi  is in lending. users can lend out their crypto,   and earn interest; or they can borrow funds  rates on these decentralized

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Lending platforms are   all these exchanges are managed by  these are agreements written on  ethereum – which execute automatically  the proliferation of digital financial services  means individuals and companies can now expect   to send and receive funds in a matter of seconds.  but the actual time it takes for those flows

Of   hours, or a matter of days. for example,   system called swift for fund transfers.   sitting in the middle of each transaction,   meaning transactions can be accepted while funds  the real value in blockchains is that they are  the blockchain is the motorway, the  you have different types of motorways for 

Different types of cars. nonfungible tokens   other applications that are launching a new   real value of the crypto coins that are  associated with each of the blockchains   is that they’re like the fuel. solana have a coin  defi didn’t truly take off as an industry until  2020. that year, the sector saw exponential  

But defi protocols aren’t covered by consumer  protection laws, making them riskier than products   from regulated institutions. there are also doubts  about how decentralized defi platforms are, with   regulators warning some services may be governed  it’s been called the “wild west” of crypto  — hoards of computer programmers

Trying to   as loans to the blockchain. investors were   returns on savings in certain digital tokens.   as the value of the defi market  seeking to exploit it has also grown.  overall losses caused by defi scams  i’ve come to a conference in london  have gathered to discuss efforts to clean up  the crypto industry. defi

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Is a key theme here,   criminals are enterprising individuals.  they go where the money is. at blockchain analysis firm chainalysis,   there’s nothing inherently evil or wrong with defi   trillions of dollars move into a new asset  jim lee, chief of the internal revenue  service’s criminal investigation division,  

The u.s. have hundreds of  crypto type investigations,   the speed at which crypto moves  or money moves these days,   to ensure that we’re, we’re on top of  the criminals in a very small space. collaboration that’s now happening between   partnerships are critical. crypto moves so fast  the collective partnership and

Relationships  around the globe, just make this space very small   for criminals that want to try to take advantage  of it and our job is to make sure the ecosystem   just like a car, every defi service is  ultimately the product of the labors of people   if a single part of the mechanism inside a vehicle   the same

Is happening in defi. and, in some  take blockchain bridges, for example. these  are tools that allow people to transfer   tokens from one crypto network to another,   instances of sloppy programming and software bugs   more than $1 billion worth of crypto has  but the use of new software tools has made it  easier to trace

Crypto criminals’ ill-gotten   data science and machine learning techniques   unlike other forms of fraud in fiat, with  cryptocurrency in the blockchain, we have   speed of accessing that record globally   defi faces an uphill battle if it wants to compete  with the titans of traditional finance. while the  

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Entire market is now worth over $60 billion, this  pales in comparison to the trillions of dollars   the implosion of controversial stablecoin   venture terra, among other mishaps, mean that  for now, the industry is still  very much in its infancy.   common sight. but investment is being made   and governments are

Expected to usher in new   it will come through once we’ve got rid  of the cowboys. some of these exchanges   corrupting a very good system that i hope   inequality of wealth through generations.

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What is DeFi, and could it upend finance as we know it? By CNBC International