Decentralised Finance: Complete DeFi Overview & Outlook

decentralized finance is one of the hottest topics in the crypto verse right now with many speculating that it could be significantly bigger than the legendary ICO bubble of 2017 so what on earth is defy and what could it mean for the crypto space I'm guy and in this video I'm going to try and answer that very question I will also take a look at the popularity of defy tell you what a collateralized debt position or CDP is explain why defy is useful and what you can do in the current defy ecosystem explore the future of defy and highlight some of the current problems with decentralized finance all that is to help answer the question should we be paying more attention to defy related projects before I jump into the content there are a few quick things I need to say my videos are here to help you with your research and are certainly not investment advice I am no one's financial adviser oh and if you're new to the channel and get value from this video don't forget to hit the subscribe button and ping that little bell to be notified about my latest videos if you stick around to the end I'll also share my personal take on decentralized finance and let you know which defy related projects I have my eye on okay let's rock and roll into defy to explain what decentralized finance is I'm going to have to quickly run through what smart contracts are in short digital smart contracts enable you to exchange anything of value in a transparent way whilst avoiding the use of a middleman so let's say that Elon Musk wants to sell a SpaceX rocket to NASA however Elon doesn't trust that NASA will send the money and NASA doesn't trust that Elon will send the deed to the rocket this brings up the age-old problem of who sends first now alternatively a middleman could be used to act as an escrow however this could be expensive and neither elan nor nasa want to waste needless money on a middleman here this is where smart contracts could prove useful the contract could be programmed to only switch the assets if Elan sends a digitalized rocket deed to the smart contract NASA sends 100 million dollars in Bitcoin to the smart contract if both these criteria are fulfilled then the smart contract would execute the trade automatically the key thing to know here is that smart contracts can be programmed to receive and redistribute digital assets they can also be programmed with custom rule criteria and transactions made are recorded on a public blockchain this means that the ownership of the assets cannot be disputed oh yes you also need to note that etherium is the biggest smart contract platform out there now with that out of the way let's continue on into define in a nutshell decentralized finance takes components of traditional finance and decentralizes them by removing middlemen and replacing them with smart contracts a straightforward example of this is decentralizing loans and earning interest however I'm not comfortable with standing here and giving you the impression that defy products and services are truly decentralized elements of the current defy ecosystem are pretty heavily centralized the reason why is that many dphi services or products have a central company behind them creating the smart contracts instead the way I like to think about defy is that it's non-custodial finance where you don't need to trust a third party like a bank with your money in my humble opinion that's a more accurate term to describe what defy actually is however I have no doubt that the marketing department at defy projects would take issue with having to throw around the term non-custodial finance it's simply not a very sexy buzzword to use so I've been pretty rude by throwing around the word non-custodial and not explaining what that is but simply non-custodial means that you still hold the keys to your crypto and do not trust them with a middleman like a banker so now that you know what dphi is let's take a look at why you might consider using defy products or services decentralized finance is all about building more complex financial systems on top of the blockchain and enabling them to work with that store of value that currency that payment system the cool thing is that block chains that support smart contracts enable you to interact with money and empower you to participate in things like loans collateralized debt and fundraising all this while being outside of the traditional banking system so this will begs the question what are most people doing in the decentralized finance ecosystem well the most common use cases are borrowing money and supplying money to earn interest the key thing to note about taking out a loan or borrowing money in dphi is that it's not the same as getting a loan from your bank where you essentially bring future cash flows forward to today loans within decentralized finance I'm more like getting a loan from your local pawnbroker no no not that broker yes that one now in case you don't know how this works customers can take an item like a car musical instrument piece of jewelry or pretty much any item of value to the pawn brokers and receive a loan based on the value of the item the pawnbroker might lend you 50% of the value of the item charge you interest and if you miss your repayments they might sell your item to recoup the value of the loan pawn brokers will always lend you less than the value of the item you're putting up for collateral and this is known as an over collateralized loan borrowing in dphi is pretty similar to this to get a loan you need to bring collateral in this case cryptocurrency and that's locked up in a smart contract called a collateralized debt position or CDP the thing to know is that if you're borrowing money in defy it will be over collateralized and if the value of your collateral Falls too much you can have your crypto liquidated by the CDP to cover the loan it's a bit like a pawnbroker selling an item to cover a loan that's gone south the awesome thing about dphi is that it essentially enables you to access many financial products or services without having to kyc or get approval from anyone it doesn't use credit score's or discriminate based on the location you live in in Short dfi opens up financial products to a global audience and does away with the annoying barriers to traditional finance in my book that's all pretty cool now you've learned a bit about defy you're probably wondering how big this new financial ecosystem actually is a website you should have on your radar is defied pulse com here you can see there is a whopping eight hundred and fifteen million dollars locked up in the defy ecosystem now you might think about that eight hundred and fifteen million dollars for a second then think about the total cryptocurrency market cap and say no big deal however what you've got to know is that around a year ago there was just over three hundred and twenty million dollars locked up in dphi now that is some pretty serious growth so if you've been wondering why so many people have been whispering in hushed tones about defy this is the reason with just a quick glance at the total value locked in defy chart it seems quite likely that we can expect defy to grow further in popularity throughout 2020 now that you've seen the trajectory of defy I'd like to show you some of my favorite defy sites and some cool products and services that make up the current ecosystem if you're dipping your toes into D Phi then the chances are that you're thinking about earning interest on the crypto you hold the thing to know is that there isn't just a single defy interest rate and you'll need to shop around to get the best deal that's where websites like loans can do come in here you can easily compare the different interest rates on the different defy platforms and choose the deal that's right for you if you're interested in earning your interest on your crypto then a good place to start is compound finance with over 137 million dollars worth of crypto assets earning interest on the platform it's one of the most popular lending platforms out there and after using it myself I can certainly give it two thumbs up in terms of defy trading platforms you have the likes of the dy/dx exchange which offers non-custodial margin trading currently you can only trade eath and die if you SDC and die USD c trading pairs however more assets will probably be supported in the future what the platform enables you to do is short or long aetherium with a meta mask wallet that means that you can trade whilst having full control over the keys to your crypto and does away with the need to trust a centralized exchange that could run off with your funds token sets calm is a pretty interesting d5 platform that offers Robo sets in a nutshell these automate your crypto portfolio management and you can select the trading strategy of your choice so let's say that we're bullish on D Phi and we think F will do well seeing that the vast majority of D Phi projects are built on aetherium we might want 75% of our portfolio in eath and 25% in Bitcoin the problem of course is that it's a pain to have to constantly rebalance your portfolio the cool thing with token sets is that you could just get the eath Bitcoin 75% 25% wait set and token set would automatically rebalance the waiting every month for you a pretty nice solution to save crypto holders time and effort now that I've talked about a range of different products and services that make up the D Phi ecosystem I'd like to move on to exploring the future of decentralized finance D Phi is still very young and that's why so many people believe in its explosive growth potential what I find fascinating about the whole decentralized finance movement is the possibility to completely democratize access to financial services according to the World Bank an incredible 1.7 billion adults in the world don't have access to a bank account in other words the world banks have excluded 1.7 billion adults from access to basic financial services like access to loans currently D Phi loans need to be over collateralized however it's probably only a matter of time before some under collateralized loan alternatives will emerge I do foresee a loan reputation system coming about in the near future one that's recorded on the blockchain and which enables people to get access to under collateralized loans a bit like how a bank lends you money for a mortgage after you've put down a deposit for a house however the key thing here is that a bank account would not be needed the greedy banker would be cut out and the world's unbanked population could get access to these financial services with just a few taps of their smartphone another major stumbling block to democratizing access to financial services is actually reducing the friction to transfer value into and out of the crypto universe how on earth is a non banked person going to trade their local currency for crypto to participate in the defy ecosystem well one way is to use a service like local bitcoins and just do a real-world peer-to-peer exchange I'm sure that new methods may be defined in the future I'm also fascinated by the potential role that people in developing countries could play in the growing popularity of defy when I look around the world there are plenty of countries in South America that are experiencing rampant inflation Venezuela is at the forefront of everyone's mind here and you can see why when it takes this much money to buy a roll of toilet paper now let's just marvel at this image a little bit in Venezuela it's cheaper to wipe your ass with fiat than toilet paper pretty mind-blowing uncomfortable but mind-blowing anyways people in developing countries with high inflation like Venezuela or Argentina need access to a stable asset to preserve their purchasing power and earn interest at the same time the cool thing with defy is that they can do exactly that with a platform like compound financed by lending out their dice table coins and earning USD interest what I'm particularly excited about is that decentralized finance already offers these people the tools to protect themselves and their families against rapidly inflating local currency and also making interest from the value they hold this appears to be a massive use case for defy that people can use today and I wonder how big this can really get once word spreads about it so now that I've shared my thoughts about defy future it would be remiss of me not to highlight some of defies current problems a major issue with defy is that it's pretty complicated for your typical person to understand to participate in the decentralized finance ecosystem you're probably going to need to use meta masks and that's not straightforward for your average person another major concern is that smart contracts have bugs in them there are numerous occasions where bugs have occurred and users have lost their funds by having them stuck in the smart contract now that's a pretty scary risk people could be taking by participating in the defy ecosystem the good news is that there are several decentralized insurance projects like Nexus mutual ether risk and CDX I believe defy insurance will be a big thing and play a key role in giving users the confidence to use defy products and services right now dphi services seem to be mainly built around speculation and giving people the ability to leverage their crypto assets there's no issue with this however four defy to truly succeed I'd like to see more meaningful defy solutions being created finally if we go back to the way I think about defy despite claiming to be non-custodial Finance I've been unable to find a defy platform with a noncustodial solution that allows me to get in and out of crypto in a non custodial way all the current defy platforms appear to be crypto decrypter and I'd love the ability save and earn interest on my money on a platform like compound finance and be able to get fiat funds in my bank account quickly in case I suddenly need the money to pay an unexpected bill for example also I think it would be much easier for crypto newbies to get into defy if there was a quick and easy way to get aetherium on some of these dphi platforms using their bank account as things stand defy still remains the preserve of crypto veterans and that could potentially hamper growth in the future however there is a noncustodial way to get in and out of crypto or fiat on the horizon that could solve this problem a little-known project I'm following is called nimac and one of the bits of tech they have coming out this year is a Fiat smart contract this is called nimac oasis and it will enable non-custodial crypto Fiat trades this is being built in collaboration with 1031 bank owned by Wegg Bank and the tech aims to make fiat currencies programmable as if they were tokens on a blockchain if you wanted to learn more about nimac and its Oasis integration then I've completed a separate video that you can watch right yeah now if you've made it this far give yourself a pat on the back I know there is a lot to take in however I'd like to share my closing thoughts on decentralized finance with you I'm cautiously optimistic about the future of defy and personally believe it's going to go from strength to strength as even more people dip their toes into the defy waters and even more products and services are built eight hundred and fifteen million dollars of total value doesn't usually get locked up in something without good reason and no one can argue about the amazing growth trajectory of decentralized finance either I think that one of the key things set to supercharged defies growth is the terrible returns that banks try to give you on your savings here in the UK HSBC made a massive deal about raising their interest rates to 2% but only if you lock your money up for three years now I don't know about you but that seems like a terrible deal to me when I know I can get five and a half percent per year on dy/dx by supplying USD C to earn interest also I wouldn't need to lock up my money for three years in D fight either another interesting solution to consider is where retail bank interest rates will go in the future with all this funny money flying around interest rates on cash deposits are sinking lower and lower it wouldn't surprise me if dphi started attracting a more mainstream audience looking to earn a bit of interest on their cash I'm particularly interested in seeing if d fight will be adopted at scale in developing countries as a way to hedge against inflation and if decentralized finance can truly open access to financial products to the world's 1.7 billion unbanked people now in terms of my D fide plays given that the vast majority of d-phi projects are built on a theorem I have a feeling that if dphi really takes off that it could trigger a big move for eath like the ICO bubble of 2017 after all so many projects raised aetherium in 2017 sat on it and this reduced the tradable supply this combined with the massive demand for aetherium to get into IC OS both played a big role in Earth's crazy moves in 2017 and 2018 the same could be true with defy locking up a seemingly ever increasing amount of aetherium and more and more people learning about and wanting to get involved in decentralized finance that's why a theory is currently my biggest defy play I'm also pretty bullish on projects like nimac Ren maker Dow and 0x though it's still early days for defy I'm really excited about this area of crypto and the impact it could potentially have on hundreds of millions of people around the globe I'm certainly going to be monitoring developments in the space very closely so guys what do you think of defy do you think it's bigger for aetherium than I SEOs where are you going to get involved in decentralized finance I'd love to hear your thoughts in the comments below that's all I've got for you today crypto crew remember though to like this video if you liked it and subs if you loved it take it easy guys and I'll be hitting you up with another crypto video very soon [Music] you

Channel: Coin Bureau

Views: 126,770

Keywords: DeFi, Decentralised Finance, Blockchain, Ren, 0x, MakerDao, Decentralised Loans, Cryptocurrency, Ethereum, ETH

Id: Vq1bxcoW1jQ

Length: 18min 58sec (1138 seconds)

Published: Mon Jan 27 2020