WILL ‘DECENTRALIZED FINANCE’ BE THE NEXT DISRUPTIVE TECHNOLOGY? - Kanebridge News
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WILL ‘DECENTRALIZED FINANCE’ BE THE NEXT DISRUPTIVE TECHNOLOGY?

The International Monetary Fund’s (IMF) latest Global Financial Stability Report highlights myriad risks for the global financial system.

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Fri, Jul 1, 2022 2:46pmGrey Clock 3 min

The International Monetary Fund’s (IMF) latest Global Financial Stability Report highlights myriad risks for the global financial system. They include the war in Ukraine, high debt, and soaring inflation.

But the report also warned about the impact of decentralized finance, or DeFi, an emerging set of financial services applications that are based on blockchain and other crypto technologies and don’t involve banks other traditional financial intermediaries

Citing possible systemic risk, the IMF wants governments to impose regulations because, the report says, DeFi results in the “buildup of leverage, and is particularly vulnerable to market, liquidity, and cyber risks.”

DeFi may not be a mainstream vehicle yet, but that doesn’t mean financial advisors don’t need to know about it.

What is DeFi?

It’s a kind of financial application that uses “smart contracts,” to operate on a blockchain platform, usually Ethereum. These software programs allow for fully automated, peer-to-peer financial transactions without intermediaries like banks or brokers, which generally means faster settlements of trades.

“With DeFi, users are able to perform most functions that a bank can,” says Jeremy Almond, founder and CEO of Paystand, a B2B payments platform. “This includes earning interest, borrowing, lending, buying insurance, trading derivatives, and trading assets.”

Supporters of DeFi say it offers the potential to democratize financial services for the unbanked. This is a key reason the Federal Reserve is looking at creating a digital currency.

The world currently has around 1.7 billion people who are unbanked, according to Yubo Ruan, founder and CEO of DeFi provider Parallel Finance. “Some of the reasons include a lack of government-issued IDs, problems with credit history, restrictive bank requirements, or a lack of banking infrastructure within a country.”

How easy is it to use?

It can actually be cumbersome. You need several applications to accomplish what may seem like routine transactions if done at a bank, and the jargon and concepts can get complicated.

“A combination of highly technical requirements, high fees, and confusing user interfaces are putting off potential users,” says Jackie Bona, CEO of Valora, a mobile crypto wallet. “This is making it difficult for people to get started in DeFi, scaring away those who need these apps the most.”

What are the risks?

According to Archie Ravishankar, CEO and founder of mobile banking app Cogni: “Regular consumers in this space lack the regulatory protections they’re accustomed to in traditional finance.” So if you lose money, you have no consumer protection, such as the Federal Deposit Insurance Corp. True, you could bring a lawsuit, but the target DeFi organization may be an offshore entity.

Another issue is volatility. Just look at so-called stablecoins such as Luna. Within a week, its value plunged from $80 to virtually zero, tantamount to a run on the bank.

So should financial advisors suggest clients avoid these applications?

Generally, the answer is yes. DeFi is an emerging category of finance and it can be difficult to perform due diligence on new and decentralized technologies. Even those applications that are backed by venture capitalists have seen breaches.

When it comes to clients, DeFi is for those that have a high tolerance for risk. And if they are interested in investing, they should allocate a small part of their portfolio to it.

Can DeFi disrupt traditional financial services?

Even if it takes only a relatively small portion of the global market, the impact would be substantial.

“DeFi certainly has the potential to disrupt traditional finance across the board, and in some ways it already has—on a small scale so far,” says Liam Kelly, Europe news editor for Decrypt, a cryptocurrency news site. But he adds, “a lot of this hinges on breakthroughs in scalability and cutting reasonable lines between things like centralization and decentralization or opaqueness and transparency. Another possibility is that these technologies simply get absorbed by financial institutions to a point where to the consumer, nothing has changed at your brokerage account, except now on the back end it’s running on Ethereum or another blockchain network.”



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Tech investor was one of the most outspoken supporters of Trump in Silicon Valley

By Preetika Rana
Fri, Dec 6, 2024 2 min

President-elect Donald Trump named a Silicon Valley investor close to Elon Musk as the White House’s artificial intelligence and cryptocurrency policy chief, signaling the growing influence of tech leaders and loyalists in the new administration .

David Sacks , a former PayPal executive, will serve as the “White House A.I. & Crypto Czar,” Trump said on his social-media platform Truth Social.

“In this important role, David will guide policy for the Administration in Artificial Intelligence and Cryptocurrency, two areas critical to the future of American competitiveness,” he posted.

Musk and Vice President-elect JD Vance chimed in with congratulatory messages on X.

Sacks was one of the first vocal supporters of Trump in Silicon Valley, a region that typically leans Democratic. He hosted a fundraiser for Trump in San Francisco in June that raised more than $12 million for Trump’s campaign. Sacks often used his “All-In” podcast to broadcast his support for the Republican’s cause.

The fundraiser drew several cryptocurrency executives and tech investors. Some attendees were concerned that America could lose its competitiveness in emerging areas such as artificial intelligence because of overregulation.

Many tech leaders had hoped the next president would have a friendlier stance on cryptocurrencies, which had come under scrutiny during the Biden administration.

“What the crypto industry has been asking for more than anything else is a clear legal framework to operate under. If Trump wins, the industry will get this, and more innovation will happen in the U.S.,” Sacks posted on X in July.

The tech industry has also pressed for friendlier federal policies around AI and successfully lobbied to quash a California AI bill industry leaders said would kill innovation.

Sacks’ venture-capital firm, Craft Ventures, has invested in crypto and AI startups. Sacks himself has led investment rounds in many. He has previously invested in companies such as Slack, SpaceX, Uber and Facebook.

Sacks was the former chief operating officer of PayPal, whose founders included Musk and Peter Thiel . The group, called the “PayPal mafia,” has been front and center this election because of its financial muscle and influence in drumming up support for Trump.