What is Decentralized Finance? (DeFi)
DeFi products and services are conducted without a trusted central intermediary such as a bank, and they include payments, lending and borrowing, trading and investments, capital raising (crowdfunding), and insurance through your own Investment Bank & Blockchain Trust.
Decentralized Finance (DeFi):
Transformative Potential & Associated Benefits (when using your decentralized Blockchain Trust)
Abstract: (Source: Federal Reserve, The Central Bank of The United States of America)
The Full Paper can be downloaded here: www.federalreserve.gov/econres/feds/files/2022057pap.pdf
Decentralized Finance (DeFi) refers to a set of newly emerging financial products and services that operate on decentralized platforms using blockchains to record and share data. DeFi products and services are conducted without a trusted central intermediary such as a bank, and they include payments, lending and borrowing, trading and investments, capital raising (crowdfunding), and insurance through your own Investment Bank& Blockchain Trust.
An important innovation that allowed for the development of DeFi was the growth of programming capability on blockchains. This innovation allows for the creation of computer code called smart contracts that can be invoked by users without going through a centralized intermediary.
DeFi — short for decentralized finance — is a new vision of banking and financial services that is based on peer-to-peer payments through blockchain technology. Via blockchain, DeFi allows “trust-less” banking, sidestepping traditional financial middlemen such as banks or brokers.
What’s in it for entrepreneurs?
DeFi promises to allow investors to “become the bank” by giving them opportunities to lend money peer-to-peer and earn higher yields than those available in traditional bank accounts. Investors can establish their tax-exempt and decentralized Blockchain Trust with digital payment facilities, which enables you and your clients to send and receive money quickly anywhere around the world, and our clients can access their funds via digital wallets without paying traditional banking fees.
DeFi is a natural historical progression of financial services offered on blockchains. Nakamoto (2008) showed the potential for payment services to be provided without the involvement of traditional financial intermediaries in the whitepaper that originated Bitcoin and its blockchain.
Since the creation of Bitcoin, a variety of projects have been undertaken to expand the set of financial services provided on blockchains, with the potential of ultimately providing most, if not all, traditional financial services on blockchains.
These services could be provided through firms that operate on blockchain(s) but otherwise look a lot like traditional financial intermediaries, an approach called centralized finance (CeFi) as opposed to DeFi. An important innovation that allowed for the development of DeFi was the growth of programming capability on blockchains. This innovation allows for the creation of computer code called smart contracts that can be invoked by users without going through a centralized intermediary. Smart contracts are used to create decentralized applications (dapps) that provide financial products and services such as Investment Bank & Blockchain Trust registrations.
The Ethereum blockchain is currently the most-widely used dapp blockchain and hosts more than 470 dapps that represent 31 percent of the more than 1400 currently operating dapps we have identified. Many other blockchain platforms, including Polygon, Avalanche and Solana, are emerging as popular dapp platforms as well. In addition, many dapps run on more than one blockchain. Estimates of the cumulative gross value deployed in DeFi products and services ranged from $78 billion to more than $224 billion on April 1, 2022. While this number represents a very small share of the global financial system, the number of dapps is growing rapidly, as is the gross value deployed across various DeFi services.
Nevertheless, the processing limitations of the early blockchains constrained DeFi’s prospects. These limitations include the speed with which blocks are validated and added to the blockchain, the need for every transaction to be processed on the main blockchain and the rapidly increasing storage requirements for the cumulative transaction history on blockchains.
However, a variety of changes that would substantially relax these constraints have been, or are in, the process of being implemented, such as the switch to “proof of stake” and the use of “sharding” (or breaking a blockchain into pieces or shards, and storing them in separate places) rollups, side chains, and Layer 2 scaling solutions.
Broadly speaking, there are two conceptual scenarios (not necessarily mutually exclusive) that could lead to a breakthrough in which blockchain finance may become an important provider of the services currently provided by off-chain financial markets and institutions.
In one scenario, these blockchain services gain greater interoperability with the existing payments and financial system (for example, evolving to link real assets to public blockchains such as possible in your own Blockchain Trust).
A second scenario may see crypto assets evolving to become a separate, parallel financial system that provides services for the real economy such as the Blockchain Bank Coin (BBC). In either scenario, both CeFi and DeFi may pose no financial stability risks, due to the fact that both systems are currently operational and cost effective alternatives for DeFi corporate establishments and DeFI payment solutions for entrepreneurs.
How Does DeFi Work?
Decentralized finance uses the blockchain technology that cryptocurrencies use. A blockchain is a distributed and secured database or ledger. Applications called dApps are used to handle transactions and run the blockchain.
In the blockchain, transactions are recorded in blocks and then verified by other users. If these verifiers agree on a transaction, the block is closed and encrypted; another block is created that has information about the previous block within it.
The blocks are "chained" together through the information in each proceeding block, giving it the name blockchain. Information in previous blocks cannot be changed without affecting the following blocks, so there is no way to alter a blockchain. This concept, along with other security protocols, provides the secure nature of a blockchain.
Uses of DeFi
Peer-to-peer (P2P) financial transactions are one of the core premises behind DeFi. A P2P DeFi transaction is where two parties agree to exchange cryptocurrency for goods or services without a third party involved. All of these services and more can be offered through your own Investment Bank & Blockchain Trust to clients across the world.
In DeFi, P2P can meet an individual's loan needs, and an algorithm would matches peers that agree on the lender's terms, and a loan is issued. Payments from P2P are made via a decentralized application, or dApp, and follow the same process in the blockchain.
Using DeFi allows for:
• Accessibility: Anyone with an internet connection can access a DeFi platform and transactions occur without any geographic restriction.
• Low fees and high-interest rates: DeFi enables any two parties to directly negotiate interest rates and lend money via DeFi networks.
• Security and Transparency: Smart contracts published on a blockchain and records of completed transactions are available for anyone to review but do not reveal your identity. Blockchains are immutable, meaning they cannot be changed.
• Autonomy: DeFi platforms don't rely on any centralized financial institutions and are not subject to adversity or bankruptcy. The decentralized nature of DeFi protocols mitigates much of this risk.
What Are Smart Contracts?
Smart contracts are simple programs stored on a blockchain that run when invoked by a user. They typically are used to automate the execution of an agreement without any involvement by an intermediary. Ongoing updates to the computing languages on blockchains as well as greater computing power are allowing for smart contracts that can be tailored to more specific needs. Similarly, the design of smart contracts to be caller agnostic (known as composability) allows for new smart contracts to build upon the functionalities of others into more complex protocols. These protocols allow for more advanced financial use cases such as credit provisioning, insurance, and asset management.
The Ethereum blockchain (released in July 2015) popularized smart contract functionality on a blockchain network. Smart contract protocols enable lending, trading, encoding property rights, and gaming, among other uses. Anyone can deploy permanent, decentralized applications on the Ethereum blockchain. On the Ethereum blockchain, developers have created smart contract standards that provide simple templates for creating fungible tokens or non-fungible tokens (NFTs) that allow for a high level of interoperability. Smart contracts can integrate real-world data in DeFi services via oracles, which are data feeds for specific information from sources off the blockchain.
DeFi Products and Services:
As blockchains become more scalable and malleable through iterative technological innovation, they become better able to support the provision of a wide variety of financial services. Such innovations have helped the number of DeFi applications grow dramatically in terms of the number and scope of financial products and services offered. As noted earlier, we have identified more than 470 dapps operating on the Ethereum blockchain, representing roughly over half of the total value locked (TVL) in dapps, and each of these dapps offers users some kind of financial product or service. Other blockchain platforms such as the Binance Smart Chain, Solana, Polygon and Cardano are emerging as popular blockchains for DeFi protocols as well. Many dapps provide discrete services rather than complex bundles of products such as we see from contemporary banks.
However, new protocols are beginning to offer a combination of several products in an attempt to become a “one stop shop” for financial services. The key features of DeFi as currently practiced follow from its reliance on blockchains and the assets that currently exist on blockchains. Some of these features are inherent in DeFi, such as its use of smart contracts for execution and blockchains for clearing and settlement, and are summarized and compared with traditional finance.
Other features, such as governance, are evolving endogenously within the DeFi community. For example, instead of having a centralized decision-making process, some dapps utilize community governance, where governance token holders vote on proposals that determine the dapps’ operation. Governance tokens represent voting power on a blockchain project and are unique to each project. For instance, the Maker lending protocol utilizes MKR tokens.
Any token holder can propose and discuss new policies in public forms, although most proposals originate from core groups of developers. For many DeFi protocols, one token equals one vote, and a simple majority of more than 50 percent is enough to execute a new proposal. New proposals could include changes to collateralization levels, fees, and code updates. However, if DeFi is to reach its imagined potential, some other changes will need to be made in the environment in which dapps operate.
One such change that could significantly expand the scope of DeFi would be the development of mechanisms that grant on-chain tokens with legally enforceable claims on “real world” financial assets (such as corporate and consumer debt) as well as physical assets (such as ownership rights to buildings and other property as offered by your own Blockchain Trust).
Currently, most assets and liabilities for DeFi are native tokens and digital assets as well as Blockchain Trust registrations to provide you with asset protection, wealth management, tax-exemption and real world freedom from Government intrusion.
DeFi vs Traditional Finance
One of the best ways to see the potential of DeFi is to understand the problems that exist today.
Some people aren't granted access to set up a bank account or use financial services.
Lack of access to financial services can prevent people from being employable.
Financial services can block you from getting paid.
A hidden charge of financial services is your personal data.
Governments and centralized institutions can close down markets at will.
Trading hours often limited to business hours of specific time zone.
Money transfers can take days due to internal human processes.
There's a premium to financial services because intermediary institutions need their cut.
Here are your benefits when you register your own Investment Bank & Blockchain Trust with us:
* Global Tax Market Advantages
* No Taxation in Your Home Country
* Lower Incorporation Costs
* Undemanding Transfer Of Assets
* No Government Intrusion
* No Government License Requirements
* 100% Autonomous
* 100% Tax Exempt
* No Income Tax
* No Inheritance Tax
* No Taxes on Dividends, Royalties, Interest
* No Capital Gains Tax
* Protection against Lawsuits
* Ease of Operation
* 100% Freedom
* 100% Privacy for Ultimate Beneficial Owners
* 100% Anonymity
* 100% Legal
* 100% Confidentiality
* 100% Asset Protection
* 100% Wealth Preservation
* 100% Secure, To Buy, Register, Protect and Control Your Digital & Physical Corporate Assets
* 100% Secure Transfer of IP Assets Directly Possible via the Blockchain Trust
* 100% Secure Cryptocurrency Payments from and to Your Blockchain Trust
* With Your Investment Bank & Blockchain Trust You Retain The Right To Keep Your Ultimate Beneficial Owners (UBOs) and Shareholders Non-Public
* Not Tied To Any Government Jurisdiction Due To Its Decentralized Nature and Registration on the Blockchain
* No Double Taxation Treaty with Any Government
* Not Controlled By Any Government or Central Authority
The Blockchain International Corporate Registry Authority remains the most popular "tax haven" in the world offering high-level financial confidentiality and the strongest legal protection of the entrepreneurs’ interests. Available Worldwide To Any Entrepreneur Regardless of Citizenship.
Act now to establish your Investment Bank and blockchain Trust. For a private and confidential consultation, please contact us.
We share a common goal for all – achieving individual sovereignty and independence from Government tyranny. Owning a decentralized Blockchain Trust with cryptocurrency payment facilities not only is the answer to escape economic Government tyranny, but to regain 100% individual sovereignty and personal freedom.
We must start with an incorruptible foundation, which cannot be owned, issued or controlled by any man-made political authority; it must emerge organically as a transparent, voluntary ‘constitution in code’ decentralized from any Government authority or any Central Bank.
Further reading: Eye-Opening DeFi Statistics and Facts for 2023.