As it stands, decentralized finance (DeFi) overtaking or rivaling Wall Street is a quixotic dream for its proponents.
There are many hacks of DeFi applications, like when a hacker recently drained $25 million worth of Ethereum and other crypto assets from a decentralized lending platform called dForce. And due to misunderstandings about protocols and coins, there is clearly much education to be done regarding how these applications work.
Despite these barriers to entry, a prominent investor believes it is only a matter of time before DeFi “eats” finance.
Investor explains why DeFi will “eat” traditional finance
DeFi threatens traditional finance due to the benefits of accessibility and liquidity, “active” DeFi investor and Ethereum proponent Arthur Cheong wrote in a recent edition of Camilla Russo’s The Defiant newsletter/publication.
Cheong explained that with the introduction of trustless and permissionless systems with Bitcoin and its derivatives, DeFi immediately one-ups traditional banks because it “can provide universal access to financial services.” This industry, as a result, can and will provide “much better products and services at scale than traditional finance,” he added.
He illustrated this assertion with the image below, showing the supply of stablecoins on the Ethereum blockchain. Due to the recent U.S. dollar shortage, demand for “blockchain dollars” have gone parabolic, with assets like USDT somewhat filling the holes in global demand for dollars.
Chart shared by Arthur Choeng; originally from Castle Island Ventures partner Nic Carter and Coin Metrics
Notably, there is no hard evidence to confirm that the real-world dollar shortage is causing demand for blockchain dollars to spike, but the timelines do match up.
The investor added that with the (relatively) high-interest rates offered by applications like Aave and Compound,