Money emerges from a consensus on value, and finance is built on that consensus. Over the past 2,000 years, finance has grown from nothing to something, and over the past 200 years it has grown so fast that we have been immersed in it that we naturally believe that a system in which banks and various intermediaries are the nodes of circulation and exchange is what finance is supposed to be.
When DeFi came, finance was presented in a different form. When you think that Marx’s saying “an old, backward relation of production, which hinders the development of the productive forces, will eventually be replaced by a new, advanced relation of production” is more written, then you and I in this era will be fortunate to witness the dawn of a new era. The dawn of a new era.
01、The origin of the old age
The “American Gods” tell us that the gods were born from the thoughts of mortals. When the first money in the modern sense was created by the first people of Asia Minor in 600 B.C., no one would have realized that today, 2600 years later, the gods of finance would be so influential in every aspect of our society and life.
The emergence of gods relies on people’s beliefs and guides their real life, however, people’s consensus is not static, just as the Roman god system replaced the Greek god system in the West, and the Hao Tian Yu Huang God replaced the original Dong Huang Tai Yi in Eastern China, so the earliest appearance of exchange in the 13th century evolved into today’s exchange system.
It cannot be denied that the modern financial system of exchange access has played a great role in promoting global value circulation when it replaced the old financial system of bartering and bartering.
As we enter the 21st century and digitalization permeates every capillary layer of society, do the new cornerstones of the 20th century pantheon of financial gods (credit cards in 1950, ATMs in 1967, telephone banking in 1983 and internet banking in 1994) still fulfill people’s faith in them as they did in the beginning? Fairer, more timely, more efficient.
It is clear that the current financial system, despite all the technology used to try to make itself more fashionable and seemingly efficient, is still, at heart, a system that requires us to gain access to banks, pay high costs for exchange, and rely on high level brokers who feed on misinformation.
For 150 years, our financial ecological structure is not fundamentally different from the Victorian era, and is still stagnant in the industrial age.
- Decline of the old gods
Let’s see, the current financial system, what are the ills that lag behind the digital wave.
In the financial system, the number of banks and brokerage firms appears to be large. But in terms of service content and product attributes, there is no significant difference between banks and brokerages. These trustees control interest rates and fees for borrowers, and there are no competitive differences in the market, allowing borrowers and depositors to determine borrowing and deposit prices according to their actual needs.
The oracles of the old gods are the lifeblood of the financial economy and should not be lightly delegated to ordinary people, otherwise they will affect social stability, just like the monks in the dark ages of the Middle Ages who monopolized “intellectual education” in the name of “divine authority”, while they themselves threw money away and enjoyed luxury, while the peasants were frugal and frugal.
Do you really think that these elites got their money from their understanding of finance by the high buildings, the clothes, and the hobnobbing? No, they rely on the financial ignorance and powerlessness of each of the people at the bottom.
For example, a large bank in the country, a large investor position, it has the competitiveness of those extremely cheap deposits in personal savings accounts without income demand deposits, savers know that they have suffered huge losses?
Mandatory service thresholds
Nothing impresses people more than artificially set service thresholds for financial dislike of the poor.
All borrowing and lending must have a corresponding bank account, even if you already have many accounts. You must also open an account with a corresponding brokerage firm to trade securities on the exchange, supposedly to protect the safety of investors who do not have the ability to invest.
The financiers ignore the fact that there are 1.7 billion people in the world who do not have any account, and because of their backwardness in information, poverty is denied access to financial services. Or when the volume of users is small and the demand is modest, they can only offer them high-cost lending or trading services in the name of poor customer qualifications.
When people demand equal treatment in access to services, risk control is the best reason in the financial system. But is there really no way to provide equal access to financial services for everyone?
“Thanks to the Internet revolution, SWIFT allows money to flow around the world, and national exchanges work diligently to provide traders with 5-8 hours of trading services every working day, which was unthinkable 100 years ago, and financiers are naturally proud of their efficiency and responsiveness.
However, if you send money from Europe to South America, without at least two days, the money will not land, the fees are as high as 5-7%, and if it is a small transfer, it is estimated that the money is not enough to pay the fees.
And the daytime stock trading, which people are used to, can’t be traded outside of working hours? Is the market closed on double days and holidays because of security or because of the need for exchange personnel to rest? Can value discovery only be done during business days?
Lack of collaboration
In medieval Europe, feudal lords levied high and variable taxes by various means, and traders had to pay taxes at both ends of a bridge, simply because the two ends of the bridge belonged to two different lords.
Our financial system now undoubtedly resembles the feudal era of fragmentation, where the masses will face high costs to move their assets from one institution (state) to another, where each institution considers the assets of its clients as its own, and the data of its clients are considered the private wealth of the institution.
In the territory of financial institution A, the wealth created by the customer’s own labor cannot be licensed by financial institution B and therefore cannot be used in B’s territory, even if A and B are in the same country, right next door to each other in the next block.
The existing financial system is very opaque to the average user, who rarely knows the status of their bank, and the data of the targets traded is intentionally manipulated and misused by the big trading institutions.
The former manifested itself in a worldwide outcry when certain banks declared bankruptcy after being taken over for aggressive developments; the latter manifested itself in short positions in GME stocks exceeding 150% of the total outstanding, triggering a roaring WSB-led retail short-selling uprising.
Financiers often use risk hierarchy stratification and the maintenance of a stable financial order to explain the strategy of placing different information for different groups of clients, as if the power of finance is a natural horse-trading effect.
But the essence of this inequality and opacity is only a product of the old financial order, and the power granted to everyone by finance itself is the same, just like knowledge.
03、The Rise of the New God
The magnificent Wagner opera “Song of the Nibelungen” tells the myth of the ancient Nibelungen, in which mortals themselves can gain self-reflection and redemption like the hero Siegfried, and eventually set fire to the temple of Walhalla, which represents the gods, who cannot exist apart from humanity, but are not omnipotent and invincible, and will themselves face the fate of extinction.
Amidst the flood of the Internet, the financiers of the old order are also progressively improving their flaws to adapt to the historical process of the new digital wave. For example, Fintech technology is now being pushed, trying to use the power of technology to reduce their own operating costs and improve their own efficiency.
That’s right, their starting point is not to help their clients maximize their benefits, but to maximize their own profits. “Do you think we will spend huge amounts of money investing in an electronic system to massively reduce our profit sources and revolutionize our own life?” — Anyone who asks such a question will be scoffed at by financiers.
It was written long ago in Capital.
The change in the relations of production does not depend on its own improvement, but comes from the progress of the productive forces.
A new thing called DeFi has appeared on the horizon.
DeFi, whose full name is Decentralized Finance, is an open source financial protocol for decentralized hosting and financial products that do not require access.
It puts financial services and financial products on the blockchain, with a tamper-evident process (smart contracts) rather than a physical organization or institution serving all financial needs. Benefiting from the cost and marginal benefits of the scale of the interconnected network, there is no difference between $100 and $100 million in financial operations for a fully automated process, thus providing the lowest cost and greatest value to users.
DeFi devotees believe that the old financial system can all be described by a series of programs that replace it. In fact, it is true that all those seemingly complex financial services are nothing more than a finite-state Turing machine that can be simulated by a program.
Based on this logic, users no longer face institutions or organizations, and the cost reduction and value enhancement effects grow exponentially with the spread of networking. deFi’s various customizable and combinable products automated throughout the day without human involvement will siphon off the traditional financial ecological market, and the dawn of a new era has emerged.
Code as a Service
In DeFi’s world, all of a user’s property is in a private digital wallet that is completely under their control, not owned by any one institution, and property ownership is protected to the greatest extent possible.
DeFi offers financial functions such as lending, trading and insurance as an open source platform for all, providing rules for using the assets without touching the user’s property itself. Users and markets are free to choose the price and quantity they want based on instantly presented supply and demand data, and revenue maximization tools will look for assets from across the network that will help users get the highest returns, all from a variety of functionally different codes deployed on network nodes.
At Your Fingertips
DeFi provides the basic functionality of the account is the wallet address, and the wallet address is a unique code that the user initiates independently on the network and that the network assigns in real time protected by mathematical algorithms and corresponding only to the individual user. Users do not need to apply to a financial institution to own a wallet and do not need access to any identity or asset amount.
With access to the network, users with wallets can access the financial services they want, which in this Internet era means truly giving individuals the freedom to access finance.
Global reach, never sleep
Compared with the long and complicated exchange mechanism between different countries (institutions), DeFi relies on the consensus mechanism of blockchain, which can complete the clearing, remittance and delivery of funds within minutes, with extremely low transaction costs. Benefiting from a 7X24 value network that never stops exchanging price information globally, users can trade private assets anytime, anywhere without being stuck in a long wait for any one institution or trading center to take a break.
DeFi is also known as Currency Lego. Because of the open source financial protocol, it is possible to combine any combination of financial services.
Anyone can combine these different modules and put together a new DeFi product in the original ecosystem. The modules are matched with each other and can generate financial services products that meet the actual needs of users in real time.
In other words, customers’ private property can be freely bought, held and sold on any financial product they need, and Product A and Product B jointly accept and process the only data on the entire network – the user’s private property – with the authorization of the customer.
Highly transparent and open
DeFi’s system is open, on the one hand its underlying smart contract code is open source and available for access and oversight. On the other hand, DeFi’s transaction data is open to everyone, except for the private information of the parties to the transaction, which is encrypted, so that anyone can query the blockchain data and develop related applications through the open interface. Therefore, the whole system of DeFi is highly transparent and open.
04、The Future of the World
The second law of thermodynamics, also called the law of entropy increase, says that the entropy of a closed system is always increasing. In other words, the invalid energy in the universe is always increasing, and if the external effective energy is not increased, the energy cannot do work, and eventually the system will die of entropy, as is the case with all things in the world.
A company, if it can not continue to innovate and progress, will soon be eliminated. A system that is always closed only to self-interest, rather than increasing the total benefits to society, will also eventually die out.
The ills of old finance have existed for too long, leading believers in the old gods to believe that the world has been earth-centered since the beginning of time, so when Copernicus introduced heliocentrism, a great rift was created in the old belief system, and when Darwin wrote the theory of evolution, God could no longer create humans.
Why can’t people go in the direction of least financial friction costs, and why should they accept that the old world does not reciprocate rights and obligations? If the greatness of the new gods had not been seen before, then when the new gods said, “Let there be light, and so there was light,” the world dawned and the door to a new world was opened.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/old-gods-and-new-kings-how-defi-is-making-the-financial-industry-leap-to-the-next-form/
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