Our paper demystifies decentralised finance’s financial services applications, exploring how established providers can take advantage of this new ecosystem by combining it with the existing model – maintaining long-established customer needs while tapping into the emergent market.
A cryptocurrency is a type of digital currency secured by cryptography, making it virtually impossible to counterfeit. Cryptocurrencies work on decentralised networks like blockchains where large numbers of independent users host the network, so there’s no centralised authority or single point of failure. Popular examples of blockchain-using cryptocurrencies are Bitcoin and Ethereum.
Decentralised finance, or DeFi, is the financial ecosystem which revolves around that digital currency and has all the equivalents we see in the traditional centralised financial system, CeFi. In DeFi, all transactions are peer-to-peer – being decentralised, there is no central authority or middleman.
This introduces the issue of trust: in CeFi, we trust the bank or the financial institution to hold our money and to manage loans, earning interest, providing insurance, and so on. But in DeFi, users are the custodians of their own money. They must trust open and public code in the form of protocols and smart contracts to facilitate peer-to-peer loans, earn interest, trade assets, or even buy insurance.
There are certainly risks, but the technology also offers huge opportunities for financial services providers. To find out more about how the nascent DeFi and traditional CeFi can work together to benefit your organisation, read our exclusive paper via the button below.
Read our paper on decentralised finance