Bank of Japan experts explain "DeFi" has a market size of over 10 trillion yen
The financial service "Decentralized Finance (DeFi)", which has a completely different mechanism from the past, is attracting attention. DeFi Development is a financial service that realizes a program that operates autonomously on the foundation of a blockchain without going through a financial institution. The market size is about 100 billion dollars (about 11 trillion yen), and it is said that it has increased about five times in one year.
DeFi is growing fast, but little is known about its identity, except for blockchain experts. Under these circumstances, the Japan Blockchain Association (JBA) has held multiple "DeFi study sessions" online. At the study session held on October 14, 2021, experts investigating the latest financial technologies such as DeFi and Central Bank Digital Currencies (CBDC) at the Bank of Japan will explain the details of DeFi to the general public. did.
Financial services that do not go through the real world
According to Mr. Masashi Hojo, who belongs to the FinTech Center of the Bank of Japan's Payment Organization Bureau, the characteristic of the blockchain network that forms the basis of DeFi is that there is no operating entity.
In addition, "Ethereum", which is the basis of "Ether", which has the second largest market capitalization in crypto assets, is a service linked to blockchain, "Decentralized Applications (dApps)". It is also an execution platform. The programs that make up dApps are called "smart contracts," and smart contracts "run on an autonomously decentralized execution platform (such as Ethereum) without an administrator," he said.
The reality of DeFi is a type of dApps, which is a mechanism that autonomously provides various financial services in the crypto asset market through programs.
In the crypto asset market, it is common for users to exchange crypto assets for fiat currencies, that is, to buy and sell crypto assets on crypto asset exchanges. The crypto asset exchange is the point of contact between the real world and the world of cryptocurrencies. On the other hand, DeFi has the property that "financial transactions can be performed only in the world of crypto assets without going through the real world" (Mr. Hojo).
Hojo mentioned three features of DeFi. The first is that "financial services are provided autonomously without an operating entity." Once it starts working, the program will automatically determine and provide financial services without human intervention.
The second point is that "any user who can access the crypto asset network can use it." There is no need for identity verification or examination to use it. On the flip side, it also means that there is no user protection mechanism.
DeFi Development Services are primarily developed in an open community, where you can copy or imitate programs from other services to create new services.
DeFi's services are already "hundreds", he said. Typical services include "decentralized exchange (DEX)" and "lending".
DEX is a cryptocurrency exchange realized by DeFi. You can exchange different crypto assets. The exchange rate is calculated automatically by the program. A typical DEX is "Uniswap".
Lending is a crypto asset lending service. Users can deposit their assets to earn interest or borrow crypto assets. Interest, fees, borrowing limits, etc. are calculated automatically. A typical lending is "Compound". Mr. Hojo also explained the mechanism of how DEX and lending are realized. Checkout more DeFi Development Company