DeFi and the Future of Finance

VPROBLEMS DeFi SOLVES

This chapter addresses DeFi's concrete solutions to the five flaws of traditional finance: inefficiency, limited access, opacity, centralized control, and lack of interoperability.

INEFFICIENCY

The first of the five flaws of traditional finance is inefficiency. DeFi can handle financial transactions with high volumes of assets and low friction that would generally be a large organizational burden for traditional finance. It does this by creating dApps: reusable smart contracts designed to execute a specific financial operation and available to any user who seeks that type of service, for example, to execute a put option, regardless of the size of the transaction. A user can largely self-serve within the parameters of the smart contract and of the blockchain the application lives on. In the case of Ethereum-based DeFi, the contracts can be used by anyone who pays the flat gas fee, currently around $3 for a transfer and $12 for a dApp feature such as leveraging against collateral. Once deployed, these contracts continually provide their service with near-zero organizational overhead.

Keepers

Introduced in Chapter 4, keepers are external participants directly incentivized to provide a service to DeFi protocols, such as monitoring positions to safeguard that they are sufficiently collateralized or triggering state updates for various functions. To ensure that a dApp's benefits and services are optimally priced, keeper rewards are often structured as an ...