Decentralized Finance (DeFi): There are a myriad of misconceptions about decentralized finance that have contributed to a widespread misunderstanding of what this technology truly is. Many people falsely accuse this emerging industry of being an opaque set of systems that serves as a means to make the rich richer while enticing retail investors to gamble their money away. However, this could not be further from the truth.
The true promise of decentralized finance is its capability to make financial systems transparent and open source. This is while removing barriers to access, empowering scores of people who have been excluded from the current banking system.
In recent weeks, the market has seen centralized financial institutions in the crypto space collapse due to their inability to successfully bridge decentralized financial tools and a centralized financial model. Despite these failures, truly decentralized finance is looking as strong as ever. That does not change the fact that these were disappointing results that have left many people in a vulnerable position, wondering when they will be able to get their money back. But the failures of CeFi are not the failures of DeFi.
Decentralized Finance and Barriers to Wealth
Centralized entities, even in crypto or any corporations in a perfect world, would invest, lend, stake and collect yield without having huge holes in their balance sheets that require mergers and acquisitions by larger entities and liquidity providers to fix. Unfortunately, these institutions are not transparent with the way they conduct their business, and customers must put their trust into the people running the corporation to safely handle their assets.
This lack of clarity between institutions and their customers has been an issue, especially for the most vulnerable, since their inception. We have seen the consequences time and time again. The 2008 Global Financial Crisis in particular, is one
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