Netherlands based ING is here with its new analysis, which stakes a claim that that DeFi has the potential to be more disruptive to traditional banks than plain old cryptocurrencies as Bitcoin.
DeFi, which in in simpler terms is the replacement of financial intermediaries with automated digital contracts, is already a big deal today. Around $76 billion in assets is locked up on Ethereum alone.
ING Bank has conducted a deep dive into decentralized finance that includes a case study of landing platform Aave, and the study analyzes the risks and opportunities associated within this exploding new space.
A paper was released last month, titled “Lessons Learned from Decentralized Finance”.
It carefully weighs some of the pros and cons of DeFi, concluding that the best of both worlds is achieved if centralized and decentralized financial services cooperate. The moral of the story here being that DeFi could be more disruptive than Bitcoin to the financial sector.
The paper states:
“Although DeFi currently appears to be a domain on its own, we envision that centralized and decentralized financial services will converge at some stage as both have unique capabilities that are beneficial to the other. There is however the challenge for centralized institutions of making sure that their assets stay within countries that are white-listed.”
The crypto friendly Dutch lender has the ecosystem in its sights, with decentralized finance now firmly an integral part of the digital asset vision at the ING Group.
And the borderless nature of DeFi is alluring to ING, as centralized institutions spend a lot of time and money complying with multiple regulations in different jurisdictions.
ING selected decentralized lending platform Aave to carry out a case study on characteristics of DeFi. Many lessons were learned during the course of this experiment on a public permissionless blockchain that offers many advantages over traditional money markets like accuracy, transparency and speed.
However, this reduction in counterparty risk is largely replaced by technical risks around the use of smart contracts.
This, the paper says, is a general tradeoff.
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