DeFi is Alice in the Land of Finance
Opinion
First there was the “smartphone”, or intelligent telephone, in the future of which few people wanted to believe at its beginnings (1994). Today, nearly four-fifths of the world’s population have at least one mobile phone in this category*. Similarly, the use of “smart contracts” is now spreading at full speed, these automatic linchpins of what is abbreviated as DeFi, a common acronym for “decentralized finance”, where everything takes place in the absence of hierarchical structures (such as banking intermediaries, payment platforms, central banks, etc.) and in the most total – in principle – transparency, once the technological leap has been taken, like Alice falling into a deep well stranger chasing the white rabbit.
The image, sorry for the borrowing, is the one that the British weekly “The Economist” recently called upon to invite us to share its first steps into the mysterious universe of decentralized finance. This world apart is not yet that of the ordinary person, but it is infuriating a growing cohort of rather young “geeks”, attracted both by the modernity of new blockchain-based applications (this famous technology popularized for the first time on a large scale by bitcoin) and the ultra-rapid enrichment prospects they seem to promise.
The speed at which these libertarian financial apps are spreading is truly astounding. Starting from almost nothing at the start of the previous decade, the total value of all the crypto-assets that are traded on their basis would reach 2.2 trillion dollars according to the same weekly, and the value of the digitized assets alone serving as their guarantee, almost nil at the beginning of 2018, is estimated today at more than 40 billion if we refer to the site The Block, which is authoritative in the cryptic world.
We still believe in Santa Claus, including among DeFi adherents seduced by the promises of miraculous gains that are brandished before their eyes. Some products are advancing without blinking yields up to 30%, notes our colleague the “NZZ”, and there are obviously suckers to give in to temptation. As if there were souls on this earth charitable enough to share with others such exceptional opportunities to make a fortune…
Still, the magnitude of the phenomenon is such that monetary officials cannot afford to let it develop unchecked. The very security of the financial system as a whole is in danger, since there are despite everything, at the junction point with the classical world, digital avatars, such as stablecoins, which are backed by real counterparties (currencies, shares, bonds) exposed by nature to the well-known hazards of the financial markets: liquidity crises, stock market crashes, etc.
And then, we are not going to leave the field open to unbridled finance. Today’s banking “dinosaurs” deserve fresh competition to nibble market share and cut into their outsized profit margins.
We are therefore clearly moving towards a gradual domestication of the players operating on the playing field of digital finance. Judging by the frequency of meetings between central bankers and the number of publications appearing on the subject, the work is already well underway.
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