In a recent op-ed issued by Fortune, a major business magazine, Binance US CEO Brian Brooks has detailed an in-depth narrative of the benefits of DeFi over traditional finance.
Binance is the largest cryptocurrency exchange by trade volume and Brian Brooks had recently been appointed as the CEO for Binance US. In the op-ed, he detailed how innovation has always promised greater efficiency and accessibility to users. However, innovation in finance has always met with doubts over safety and suitability.
He explained that innovation in finance has made life easier taking examples from PayPal and Rocket Mortgage. Therefore, while the worry over DeFi or Decentralized is common, it is still unfounded.
Currently, over $80 billion of capital has been invested in the DeFi protocols since its roughly 18 months of inception. So it raised the question of why would a person invest in DeFi. Brooks explained that it is because the risk-adjusted benefits of DeFi outweigh traditional banking.
He, then, went on to detail some of the major shortcomings faced by consumers today. He explained:
“For as long as any of us can remember, the rates that savers can earn at banks have been depressed due to monetary policies such as post-financial-crisis quantitative easing and COVID-era stimulus programs. This problem is exacerbated by rampant hidden fees that may reduce customer return even when explicit trading fees go to zero (the “Robinhood effect”). And customers of one institution can’t trade with those of other institutions as a result of the inefficient “walled gardens” created by centralized structures (for example, Venmo users cannot pay Zelle users).”
Apart from these limitations, there’s the risk for human errors as well.
Neutrality of technology
Brooks further explained that financial regulations are based “on mistakes that are made through human negligence or malfeasance”. Furthermore, these mistakes are made by humans in their decision-making process. However, a decentralized system acts neutrally. So, it doesn’t violate any rules otherwise happening because of human greed, incompetence, or negligence.
Pointing out the current demerits of DeFi today, Brooks explained:
“Money laundering can still happen (though, arguably, less frequently or easily) under decentralized financial systems. An improperly programmed algorithm can still result in disparate impact against creditworthy minority loan applicants (though it presumably can’t engage in disparate treatment discrimination). And many DeFi protocols are tightly integrated with their native token, whose value may be more volatile than other assets investors are accustomed to dealing with—meaning that risk disclosures are especially important.”
However, if technologies are implemented correctly and are carefully used, they can solve many financial risks.
Lastly, Brooks concluded by saying he hoped that people should recognize this psychological pattern and not fear this technological revolution. He exclaimed that it is not because the current financial system is particularly loved, it is because it is the only system one knows.