Decentralised Finance, although in its infancy, has taken off around the world and has some fascinating applications
Decentralised Finance is no longer merely a concept. According to The Economist, “the value of assets stored in this nascent financial system has climbed from less than $1 billion at the start of 2020 to more than $200 billion today”. Its merit lies in the decentralised nature of transactions that do not rely on any central authority. By design, the system is more transparent and reliable. Neeraj Khandelwal, co-founder of CoinDCX joins us to share his views around DeFi and what it has in store for us.
What is DeFi and Cefi? Do DeFi and Cefi need to co-exist to provide a boost to the native utilities of the future web3 platform?
Let’s start with CeFi which stands for our standard financial system where one entity controls that particular financial system, whether it be a bank or a stock exchange. It controls the rules of the games and governs what a customer can and cannot do. Now, DeFi is the financial layer of the decentralised Web3 ecosystem. This is a completely new concept where no single entity runs the financial ecosystem. Since it lacks a central authority, no company or an individual can tamper with the rules of the game. It's a democratic financial system. What makes it all interesting is that typically, decentralised finance is built on blockchain technology which is public in nature. All of the software is open source making the entire end-to-end process fair and transparent. Cefi and Defi will co exist because Cefi can ensure a good customer experience and Defi can ensure transparency, efficiency and openness. It's the best of both worlds.
Would you say that both decentralised and centralised finance need to go hand in hand such that they provide some sort of springboard for various applications of Web3?
Centralised finance has powered the economic growth across the last century, but in some areas it is becoming a bottleneck for growth and distribution of value to the common man. For example, inter-bank money transfers between different countries are costly. Expats have to cough up hefty fees to repatriate money back home. Similarly, think of the stock market which is open for institutional investors half an hour early as compared to the retail investors who lose out on the “time advantage”. I think, over time, those parts of the financial system will move towards a decentralised setup.
Do you think DeFi can be the decentralised layer of the centralised financial world? If yes, what are opportunities that await us?