A New Outlook on DeFi or Just Another Mirage?

A New Outlook on DeFi or Just Another Mirage?

Unfortunately, a lack of trust has afflicted the cryptocurrency community. Proposals for decentralized finance (DeFi), however, are not deterred in their attempts to capture the $7.2 trillion global currency market.

Researchers who work on one of the biggest decentralized finance marketplaces court traders of fiat currencies. They believe that shifting them to a blockchain would slash remittance costs in half and decrease settlement risks around the world.

Both the researchers and the execs of Uniswap Labs and Circle Internets Financials claim that users of the $550 billion worldwide remittances market may benefit from cost savings of up to $30 billion per year thanks to stablecoins and DeFi technologies.

DeFi 101

DeFi is a financial technology that uses distributed ledgers, much like cryptocurrencies. Moreover, it cuts bank charges. Individuals may transfer funds between digital wallets, and anybody with an internet connection may use it. Yet, the blowup of Sam Bankman-Fried’s FTX empire last year and the collapse of TerraUST and sister token Luna have tarnished its image.

The paper’s investigators contend that the established flow of money, the world’s biggest market, is ripe for change in structure. They claim that closing a widening settlement gap and the chance that one party to a trade does not deliver the money owed would be achieved by moving all foreign currency onto DeFi platforms.

By April 2022, the dollar value of transactions involving one of the counterparties had grown to $2.2 trillion, compared to $1.9 trillion three years earlier. The Bank for International Settlement (BIS) has recently released these numbers. The consequences, the BIS warned, might jeopardize currency market stability.

Credits behind the findings

David Puth was formerly the chief executive of global settlement utility CLS. His involvement lends credence to the paper’s findings. The US Federal Reserve is in charge of it. Austin Adams, Mary-Catherine Lader, and Xin Wan were the other co-authors.

The writers claim that Stablecoins – or cryptocurrencies that have a fixed price – make money more efficiently. Uniswap Labs is a DeFi marketplaces company. It employs Adams and Wan as research scientists, while Lader serves as the firm’s Chief Operating Officer. Puth, on the other hand, works for Circle, a stablecoin issuer.