A small step for Ethereum… – The year 2020 was the year of the DeFi phenomenon, but the phenomenon does not intend to stop there. After having conquered the crypto ecosystem, it is now the turn of the banking institutions to look into the subject.
A stronger and more transparent financial infrastructure
On Friday 5 February, the researcher and Managing Director of the Centre for Innovative Finance at the University of Basel, Fabian Schär, published a study on decentralised finance.
This was shared with great fanfare by the Federal Reserve Bank of St. Louis, one of the regional banks that make up the famous US Federal Reserve (also known as the FED).
Through it, the specialist tried to identify the opportunities as well as the risks presented by this innovative ecosystem.
The publication includes a detailed explanation of the ecosystem and the blocks that make it up. Decentralized exchanges, decentralized lending and savings platforms, tokenization: everything is scrutinized.
Opportunities and Risks
Following these quality explanations, the researcher tackles the heart of the matter, namely the opportunities and risks of the DeFi ecosystem.
Fabian Schär has identified 4 main areas where DeFi could have advantages:
« It considerably reduces counterparty credit risk and makes financial transactions much more efficient. »
« DeFi can increase the efficiency, transparency and accessibility of the financial infrastructure. In addition, the composability of the system allows anyone to combine several applications and protocols, creating new and interesting services. »
However, there are risks, namely:
Although the researcher admits that a paradigm shift could occur between traditional finance and its decentralized alter ego, the latter will first and foremost have to address the various risks it faces in order to hope to conquer institutions.