Topic: Is DeFi really a threat to centralized finance? - page 6. (Read 1296 times)

Perhaps, the custody of property should be in the control of multiple randomized reputable  people distributed across the globe to make this decentralized? I think the keys for accessing the property could be decentralized/distributed in this manner.
 I do not completely understand other part of your post. Just responding to clear the quote above^

With the current model, DeFi will not able to integrate the 'tokenization of real assets' even if such on-blockchain asset is legally bound. Instead of working on P2P model, DeFi lending platform works on 'liquidity pool' model. Number of lenders together contribute to the pool which is then disbursed to the borrowers accordingly. Hence, there is no clear relationship between the buyer and the seller. It maybe possible that $40,000 I borrowed was contributed by 15 different lenders.

In such scenario, holding and liquidating asset would be impossible because custody of asset cannot be linked to a single individual.

So in short, DeFi model will only work if real value is on blockchain (like tokens) or value is backed by real value (assets created after staking tokens). In order to make tokenization of real assets possible, we will need a middleman who will first take custody of 'digital legally bound on-blockchain asset' on his ETH address. Then he will create another 'set of tokens' whose value will be equal to the value of digital asset less middleman's commission. Then these 'set of tokens' will be distributed to the lenders in ratio of their contribution to the particular loan.

Example: I am a borrower, I want to borrow $250,000 by giving my property having registry value of $320,000 as the collateral. I created smart contract and transferred the rights of my property to the contract address. 10 lenders contributed equally to my loan ($25,000 each) and transferred the amount to the pool' address. Then middleman created another smart contract. DeFi platform sent $250,000 from pool's address to the middleman's contract address. DeFi platform got back 10 TOKENS immediately on its pool address from the middleman's contract address which in turn was sent to each lender's ETH address. Middleman then transferred $250,000 from his contract to my contract address and immediately got my property's digital asset. Now my asset is locked on middleman's smart contract which could only be released once all 10 TOKENS are sent back to the contract address by the lenders.

This system could work out but still be labelled as 'centralized' because custody of property would still be in an individual's control (middleman) even if he won't be able to unlock it from his contract address without lender's permission.

It's probably more of an intro of something that could be done to better improve what we have today. It still remains to be seen whether it could actually provide to be a supplement to the improvement though, and even if it does actually prove to be a boom, I can hardly see the world actually moving forward to one where defi is the main financial system used. It'd probably turn to something like a Defi-like system being controlled by the government, or something similar, though that could hardly be called a Defi at that point. Well, answers would prove to be shown in the near future if they ever implement Defi as a supplement to what we have right now.

I don't see DeFi as a threat to the banks,because,at the end of the day,banks will simply buy and adopt DeFi technology(if they see potential in it).If there's no potential in DeFi,then this technology will simply die and nobody will use it anymore,just like how the ICOs died,back in 2018.
Seeing DeFi projects and banks as two opposite armies,which are going to war against each other is a big oversimplification.

Traditional banking system offers more loan schemes and more people can be eligible to take such loans compared to the DeFi because where we need to send the same amount of collateral which doesn't really make sense for someone who is in need of money now.

Central financing is not a threat to the future both are needed at work due to the outbreak of the novel coronavirus economic activities are being hampered like in other countries of the world the country's low-income professionals farmers and marginal and small traders are not able to manage their income generating activities. The contribution of the country's low-income professionals farmers and marginal and small traders to the rural economy is undeniable in that case central funding helps them to improve. DeFi projects are currently being scammed so many governments do not support them so they are a threat to central financing.

I don't think it is.

Defi projects can be gone quickly and go low in value quicker than the volatility that bitcoin has.

I second this. Crypto, mainly bitcoin is more threatening than them. If you look to the exchanges, they're already portraying as if they are the bank. Offering interest accounts which will give revenue to their depositors or investors.

In so many press defi has already marked as a service that will become the bank service became obsolete.
You can see what service that has already offered. When the bank has been offering the lending service and defi was able to do that same thing like the bank too. That means it's just the matter of time until it will be replaced.

So many centralized finance institutions have been taking the urgent action to prevent this thing to happen.

I think the biggest sign of that is Uniswap’s trading volume. After hitting a peak of slightly less than $1 billion in daily volume in early September, those numbers steadily deflated.

collateral-based lending is extremely limiting right now, but it's worth pointing out that in the future, asset tokenization could make defi significantly more useful.

let's assume that titles to real property, automobiles, boats, etc could be tokenized/digitized and precedent could be established where courts recognize these titles as legally binding. conceivably, this would enable defi platforms to extend services to the traditional mortgage and auto lending industries. this could be extended to anything where traditional certificate of titles are used today.

anyway, that's just one way that defi platforms could be actually useful rather than solely being used for speculative purposes.

the major problem for me is trusting these newfangled smart contracts. remember what happened to DAI earlier this year? https://www.longhash.com/en/news/3339/MakerDAO%E2%80%99s-in-Trouble-%E2%80%94-And-It-Could-Shake-Up-DeFi

that's the tip of the iceberg. i dunno how much value i really want locked up in contracts like that.

DeFi with the current design and definition, absolutely not. it is not even legit enough to attract attention. but the decentralization and the movement started by bitcoin is.
eventually the fraud that currently dominates DeFi today will be solved with a better solution that is both decentralized and safe and then it can be considered a competitor to the centralized solution.

Defi projects are one kind of Hype, I think personally. These are not what we think exactly. People are showing more interested in it but if we think, we will be able to find out many defi projects scam already. This will not be a threat for centralized finance.

The application of DeFi as a lending/borrowing platform has some serious flaws and I doubt it could ever realize as a genuine debt market. The first problem is collateral type. Most of the DeFi lending platforms only accept collateral in ETH blockchain assets which are commonly ERC-20 tokens. So in short, borrower is borrowing one ERC-20 token by staking another ERC-20 token on the platform. That's like taking loan in USD by giving EURO (doesn't make any sense to me). The second problem is collateralization rate. DeFi platform charges collateraliztion rates of as high as 175-200%!! So by giving collateral of $2000 in ETH, you with only get loan of around $1000-1200 in USDT. The third problem is fluctuation rate. In traditional lending market, collateral is generally linked with the purpose of loan, for example, house or car. The market prices of such collateral have low fluctuation rates. However, in DeFi, since collateral is mostly another ERC-20 token, prices of cryptocurrencies are highly fluctuating thus creating potential risk/danger of liquidation of collateral.

On top of that, lenders are paid with fictitious tokens which they can lend further to borrow more thus creating ponzi-like structure. With time, current DeFi lending model is reaching a saturation point even with yield farming and once lenders will fail to reap any more profits, remaining DeFi buzz will end as well.   

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Only application area where I am seeing DeFi making an impact is - derivative and capital market. By lending eth tokens, user can create on-blockchain assets and trade them without actually owning the underlying asset. For example, by lending $2000 in ETH, I will receive $1000 in stablecoin (considering 200% collateralization rate). Then I can use these $2000 to further create asset let say, 'Tesla Share'. Since, current Tesla share price is $433, I will receive 2.31 TESLA on Ethereum blockchain and can sell those on derivative market or use them as collateral for further taking a loan, etc. There are many DeFi platforms emerging with this concept however, for this to work seamlessly, we need high-speed cross-platform APIs providing real-time accurate price data which is very hard to get.

I don't see Defi as a threat to the centralized finance but I see it as an opportunity to change for better! Defi is all about sharing risk together, as a stakeholder! Banks also have a Similar structure while lending to corporations which we call consortium of Banks. However, this model isn't followed for retail loans. But the way the world is moving, borderless banking will have to commissioned at some point of time in future!

I think, Defi model will bring in exactly that! Right now, we are not seeing it happening soon, but eventually it will take over!

From my opinion, No. Now everyone interesting in DeFi and much investors effected by scam for this interest. I am not saying that, every DeFi is scam. But, From my opinion, speed of DeFi will stopped in future.

On a level playing field, yes. If developers build truely decentralized applications on Defi and regulators do their job well/legally/morally,  CeFi or centralized finance will cease to exist and true DeFi will flourish. I think this will likely happen in a Just Society with people strongly following Just Law.

In theory crypto is a threat to banking, on practice it's so small that they don't even notice it. It's even worth with DeFi - there's absolutely zero non-speculative adoption of it, all the DeFi users are just crypto investors who want to multiply their crypto. No one is interested in using DeFi as a replacement for traditional financial services. We've already seen it with ICO, how it was hyped as a killer of traditional investment, and where it is now? There's a very high chance that the same will happen to DeFi.

It remains to be seen if DeFi is even going to reach that level of importance--it could fizzle out entirely and not be a supplement to anything.  I don't know a hell of a lot about it, but it seems to be a platform for lending for the sake of lending in order to make an outrageous profit.  Almost everything I've heard about DeFi has revolved around how much money you can make, and very little about whether it's a good thing on its own.

What I'm pretty sure of is that traditional finance is going to rule the day unless/until there's a crisis severe enough such that multiple fiat currencies (and I'm talking the big ones) collapse, and the banking system collapses.  If neither of those things happens, there's really no incentive for the average person to use DeFi--just like there's no real reason for the average person to use bitcoin. 

The financial system might have some serious problems, but it's not completely broken yet.

As long as decentralized cryptocurrencies functions independently, without the need of bank accounts, without the need of master cards for transactions regarding trading and such, they cannot be considered a threat to centralized bodies.
The decentralized system is entirely different and doesn't have that high of an acceptance rate which ultimately leads people to invest in the centralized bodies. At the same time it does need internet which is not available everywhere and everytime. For us it might be a normal thing but trust me , a large number of population is within internet, without even electricity. Those people do need the simple traditional centralized investments.
Decentralized economy like cryptocurrencies is most likely a luxury which we all have , use and earn through but we cannot just ignored the fact that centralized economic is more or so as important as the decentralized one , or maybe even more ?

I think it is. And vice versa - cefi is a threat to the future of defi (which we all pray for).
At the end of the day customers, majority of users decide what industry will look like - because they pay for service.
If Defi will manage to be not only only more secured, but also more usable and comfortable to use - cefi will get lost once and forever.