Dan Morehead, the CEO of crypto-focused venture capital, Pantera Capital, has made comments on the relevance of the decentralized finance (DeFi) sector in the cryptocurrency industry.
Speaking in an interview with The Motley Fool, Morehead also mentioned the noteworthy difference the Defi ecosystem has made in the financial sector as a whole, making things easier for users.
He said, “The DeFi space exploded over the last nine to 12 months. It’s now about $40 billion of assets locked up in DeFi. In our world, we’re all really excited about that, because we’ve been big investors in that sector for a while, but this is still a microscopic fraction of the $200 trillion worth of bonds and equities out there. I think we still have a decade or two to go on DeFi, but it certainly is, in our opinion, the most important growth sector.”
To recount the notable development that DeFi has made in the financial system, Morehead narrated the history of finance and how DeFi, aided by the internet, is different from the centralized banking system which is a motivating factor behind the sector’s huge commitment towards this system.
He claimed that the banking system, not fully utilizing the power of the internet, is not making many changes in comparison with how the system worked in the past during the time of the invention of double-entry bookkeeping in the 15th century.
The Pantera CEO gave instances of centralized financial institutions that are not fully utilizing the internet like Visa, Mastercard, and Western Union that have a long history but are not really making changes in things like charge rate.
The internet, with its power to change and develop things, is infused into the DeFi sector, removing the middleman entity from commercial activities like borrowing and lending causing a high influx into this sector.
The centralized banking system serves as a middleman between depositors and borrowers. However, the Defi system eliminates the lengthy and expensive aspect of a middleman and directly connects the lender and borrower.
By using a code to escrow or hold funds, each party benefits from the transaction. The borrower gets lower rates to borrow at, while the depositor gets a much higher rate. Both parties pay fees for the code, which is considerably lower compared to traditional markets, and also avoid incurring additional expenses on taxpayer bailouts.
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