DeFi power increases

According to Matt Hougan at Forbes, even DeFi sceptics are taking a more positive view of decentralized finance (DeFI), plus recent coverage from the mainstream media has been remarkably positive, and he cites articles from the New York Times and the Economist, both authoritative publications. However, Hougan, whose company launched the world’s first DeFi crypto index fund in February of this year, believes the mainstream media (MSM) has missed half the story, and that to really understand the full power of DeFi, you have to think about Airbnb.

He comments that the MSM tend to use the Uniswap protocol as a way to explain DeFi, and whilst he acknowledges that Uniswap is the largest DeFi application around and the easiest to understand, it doesn’t give an accurate picture of DeFi can really achieve.

Hougan believe we need to take a look at some of the biggest disruptors of the last two decades, i.e. Airbnb and Uber. They achieved success through disrupting well-established markets by unlocking large, new sources of supply. For example, Airbnb disrupted the hotel market by sourcing millions of new rooms for lodging. Uber created a market for ridesharing and disrupted the taxi industry. Hougan says, “In each of these examples, people with something valuable didn’t have an easy way to bring that value to the market … until they did via Uber and Airbnb. DeFi does the same thing for finance.

For example, with DeFi, you can supply liquidity to the market and earn fees when people take out a loan. This doesn’t happen when you deposit money in a traditional bank. In this case, the bank uses your money for its own liquidity and you get nothing in return. Even if you put it in a savings account, interest rates are so low now that there is little to gain from doing this.

Until now financial institutions have been extremely resistant to disruption, largely because they have the advantage of having scale. For example, the New York Stock Exchange has been America’s largest stock exchange for 250 years, partly because its size gives it a liquidity advantage. DeFi changes this because it allows “massive new sources of liquidity supply” to enter the market. If you consider a lending platform like Aave, you can borrow crypto assets and pay interest, or you can lend crypto assets and earn interest. As Hougan says, “what’s really cool is that the liquidity on these DeFi platform was supplied by thousands and thousands of users scattered around the world.”

That’s why DeFi works for you and your money.