Decentralized Finance, aka “DeFi,” will give everybody access to the same money-making opportunities rich people use to build wealth.
These open, permissionless financial networks are available to anybody who has a cryptocurrency wallet, with one quirk: they’re computer programs. No people or banks, just algorithms backed by a blockchain.
Financial engineers mix and match these programs into financial products designed to boost gains, manage risks, and improve market activities.
As OKEx’s CEO told Finance Magnates:
[DeFi is] already beginning to rebuild and replicate the entire world’s financial system using decentralized applications that fit together like blocks of Lego.Jay Hao, CEO of OKEx, “What Is DeFi and How Will It Impact Traditional Finance?“
Sounds great, but if you’re hoping DeFi will free common men and women from the cruel control of Wall Street, I have some bad news.
Too complicated for your average person
Maybe you can put together a Lego kit on your own, but most people can’t. Even with instructions, many people struggle.
While you and I have enough patience to sift through Cryptoradar or explore all the platforms connected to the Argent wallet, most people don’t.
They need somebody to do all that for them.
(To be fair, I do too. This stuff gets complicated!)
DeFi lego masters will rule the future of finance
Because DeFi is so complicated, a new class of financier will rise to guide people through all the platforms, protocols, and permutations.
Who has time to check out all 118 platforms, websites, and services listed on DeFi pulse? Can you put together the best mix of security, terms, and rates? Do you know how to spot flaws in these exotic protocols?
All these lending platforms have different apps, interfaces, rates, and funding limits. All these tokens do different things in different ways. It’s a lot to sort out. If you can hire somebody to figure this stuff out, you will.
That’s how personal finance got started—rich people paid somebody to manage their money. These people learned the ins and outs, tips and tricks of finance. They learned how to play the game and work the system. As they grew their clients’ wealth, other rich people hired them to do the same.
Over time, these experts started firms and advisories. They were the lego masters of their day.
Their descendants run the world’s financial markets.
Soon, a digital version will run the financial markets of the future–but not without a human element.
WordPress for Wall Street?
It won’t take long for a bunch of DeFi advisors to set up shop.
At first, they will seem amateur. Young upstarts and Wall Street exiles giving advice on what tokens to buy and what platforms to use.
They may build apps and APIs that automatically rebalance or farm yield. They’ll probably get kickbacks, referral bonuses, and sponsorships from lending platforms and altcoin projects.
Traditional financial firms may even bring them on as subsidiaries or affiliates.
As they gain knowledge, expertise, and clients, they’ll start firms and advisories, just like their predecessors. As they grow, they’ll use their money and connections to push out competition or lobby governments for laws that benefit themselves.
Do you think they want to lose clients to BitOffer’s 3x leveraged bitcoin fund? Get dropped for a DEX offering access to some overhyped token? Lose business to some yokel who pastes the Binance Academy website into a subscription newsletter?
How long until a protocol bug or flash crash compels authorities to “protect” investors by forcing them to use only licensed advisors (and pay the fees they charge)?
When do these DeFi experts create their own lending tokens—a COMP or YFI for Wall Street? Once they do this, how many tokens will they keep in their treasury for “governance” and other expenses?
Things can change quickly
As DeFi gets more sophisticated and professional, you will have security tokens, token sets, microshares of real assets, and all sorts of financial innovations nobody’s even thought of yet.
You’d think that would break down barriers for common people to finally access the same products and services rich people have used for decades to stay rich, right?
Maybe, maybe not.
More likely, people will need somebody to navigate this new world for them. Just like they do with the old world. They’ll find advisors with knowledge, expertise, and a trustworthy reputation in finance.
What types of people will fill this new role?
Probably, the same types of people who filled the old role.
“Meet the new boss—same as the old boss.”Roger Daltrey, The Who
Mark Helfman is a top writer on Medium for bitcoin. He also publishes the Crypto is Easy newsletter. His book, Consensusland, explores the social, cultural, and business challenges of a fictional country that runs on cryptocurrency. In a past life, he worked for U.S. House Speaker Nancy Pelosi.