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I have always wanted to do a book review. However, work and other life priorities have kept me away from accomplishing this task in my bucket list. Maybe I am taking more than I can chew. So, instead of writing a book review, why not do a Chapter Review Series instead? That would lift the burden of reading the book in one sitting. And a piecemeal Chapter Review would also make the content more digestible for crypto readers.
The book that I will be reading and reviewing is, "How to Defi" by Darren Lau, et al. The writers are researchers from Coingecko.com which is a website that tracks the price, volume, market capitalization and other metrics of crypto currencies. This is the first edition having been published last year.
I selected this because I want to learn more about this concept of Decentralized Finance (DEFI) and understand why there is so much craze about this. I have read several articles from various blogs about decentralized finance, decentralized exchanges, swapping, staking, lending, borrowing, and among other things. But the knowledge and information that I got from these blogs lack coherence, substance and authoritativeness.
Sometimes, writers and bloggers do not have the discipline to explain and elaborate simple terms like yield farming, APY, KBTC, etc. as shown in the image above. They just assume that the readers know about it. Instead of being informed, you get more confused. What is missing in decentralized finance is an authoritative reference material that provides a framework that integrates the different decentralized finance projects. This is what the books attempts to do. To quote the writers on this matter,
Decentralized Finance (DEFI) has grown very rapidly in the past one year but the material to help people grasp the idea of DEFI lagged behind.
I bought this from Coingecko.com for $14.99 but Coingecko users can have this for 800 candies. Candies are daily rewards for platform users and can be claimed from rewards section of Account Details.
The focus of the book is with DEFI built on Ethereum because it is on this blockchain where majority of DEFI projects has been developed.
This is an introductory book for DEFI beginners and it is structured with simplicity in mind. In each chapter, basic concepts are explained and a step-by-step guide is provided to help the reader interact with at least one DEFI product. A section for recommended readings is also included for those readers who may want to dig deeper on the subject.
Decentralized Finance is an innovation, hence, it makes sense to differentiate it from what it existing at the moment. What the world currently has is the traditional finance, represented by banking institutions. The banks are the giants of this industry, they facilitate payments, accept deposits and offer lines of credit to individuals, businesses, other financial institutions and even governments.
With all the benefits we enjoy from this financial system, there are human related risks such as mismanagement and corruption as shown by the global financial crisis in 2008.
Decentralized Finance seeks to improve the financial system through the use of internet and blockchain technology in 3 key areas of the banking industry, namely:
Payment and clearance system (remittance)
Issue: In a globalized world, the cross country payment and remittance system is inefficient. It takes days to transfer money from one country to another and its cost is very high.
Solution: Crypto currencies that power DEFI allow users to bypass intermediaries who take a lion's share of the remittance.
Issue: Participation in local and international economy is totally dependent on having a bank account. But access to banks remains a huge challenge especially to developing countries. According to World Bank Statistics, around 1.7 Billion people do not own a banking account. This lack of access to financial institutions helps perpetuate the cycle of poverty as those who need capital more have no way of accessing it.
Solution: One of the battle cry that I have heard in crypto space is, "Be your own Bank". With DEFI applications, what is only required from a person would be a mobile phone and access to the internet. There is no lengthy verification process.
Centralization and Transparency
Issue: As demonstrated by 2008 Financial Crisis, the centralization of power and funds in the hands of banks is dangerous and downright stupid. Banking operations is very opaque. Even audited firms and premium rated financial institutions still have things hidden in their vaults that they want to keep it away from prying eyes.
Solution: DEFI protocols built on top of public blockchain such as Ethereum are mostly open sourced for audit and transparency purposes. They also usually have decentralized governing organizations to ensure that everyone knows what is happening. Protocols are also written as lines of codes, codes which do not discriminate. They function as they are programmed to.
These challenges with the current financial system are important to be addressed and I have read things where banks have asserted that advances in technology will solve these challenges. The irony is, it seems that new technology will not only address these banking issues but will make the banking institutions a thing of the past.
The Decentralized Finance movement offers a lot of promise and will make a significant contribution if it can really addressed these issues. It is too early in the ballgame to say with confidence that DEFI will deliver on its promises. Only time will tell if it can be the solution that we are looking for.