Fervent proponents ofcryptocurrencies and the blockchainsthey run on have promised a lot.
So what are cryptocurrencies and blockchain good for?
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What is DeFi?
Everything depends on the bank: It sits in the middle of the process and controls your money.
Thatraises the cost of credit and limits borrower flexibility.
you could get one instantly by simply putting cryptocurrency up as collateral.
Anyone can join a DeFi loan pool and lend money to others.
The risk is greater than with a bond fund or certificate of deposit, butso are the potential returns.
And thats just the beginning.
Because DeFi services run on open-source software code, they can be combined and modified in almost endless ways.
These benefits help explain why DeFi growth has been meteoric.
The total value of the market was $69 billion as of Aug. 3, 2021.
Even amongcryptocurrency holders,just 1% have tried DeFi.
Blockchains cant eliminate therisks inherent in investing, which are the necessary corollary of the potential for returns.
In this case, DeFi can magnify thealready high volatilityof cryptocurrencies.
Moreover, there isnt any banker or regulator who can send back funds transferred in error.
The primary protection against unexpected losses is the warning investor beware, whichhas never proved sufficient in finance.
Its not even clear how some of those requirements evencould be enforced in DeFiwithout traditional intermediaries.
DeFi makes it easier than ever to create hidden interconnections that have the potential to blow up spectacularly.
Regulators in the U.S. and elsewhere are increasingly talking about ways to rein in these risks.
For example, they are starting topush DeFi services to complywith anti-money laundering requirements andconsidering regulations governing stablecoins.
But so far they have only begun to scratch thesurface of what may be required.
From travel agents to car salespeople, the internet has repeatedly undermined thebottleneck power of intermediaries.
