Decentralized finance (“DeFi”) is still at an early stage, but it is growing rapidly.
In fact, it’s so new that many financial experts from Wall Street are still unaware of what DeFi is.
Every week, billions of dollars in assets come onto DeFi as an asset class. Patrick Horsman believes that we are about to experience a large shift in the way value is transacted across the internet. Most pieces of traditional financial systems are being reinvented in more efficient ways using distributed ledger technology platforms like Ethereum.
Patrick is “extremely bullish” on DeFi as an asset class. As Patrick explains, DeFi can be viewed as taking the most profitable businesses from Wall Street, such as derivatives, lending, and exchanges, and turning them into software that runs autonomously on smart contract blockchains. These are global peer-to-peer networks that allow people to interact and transact in a trustless permission less system with no trusted intermediary in the middle.
DeFi protocols run with a trusted party in the middle of the transaction. This in turn translates into massive value through reduced friction, and lower transactions costs.
Compare DeFi with a traditional savings account. While depositors can expect to receive 0.5% at a depository bank, the risk-free rate on stablecoin deposits are around 6-8%.
Over an 18 month period, from May 2020 to Nov 2021, the amount of capital invested into DeFi platforms TVL "Total Value Locked" grew at an astonishing 277X - from $1B to $277B in TVL.
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