In this fascinating online lecture, Professor Carol Alexander provides insights into the rapid changes taking place in banking and finance.
Decentralized finance, or De-Fi is the internet of money. Back in the 1990s, nobody knew how to commercialize the world wide web of information. Yet, within a decade, web 2.0 had transformed our lives. Now we are entering the age of web 3.0, which is driven by blockchains with primitive financial actions that developers combine to create complex distributed applications (dApps).
Blockchains don't just carry bitcoin transactions, they incorporate smart contracts which companies use to create fungible, tradeable tokens in return for capital raising, or non-fungible tokens (NFTs) like Crypto Kitties. Smart contracts have already replaced many processes normally assigned to banks such as letters of credit, making loans, or executing swap payments. A huge variety of other types of smart financial contracts already exist, and they -- and the blockchains which carry them -- are evolving at an incredible pace.
We witnessed the birth of De-Fi once peer-to-peer lending and foreign exchange dApps started to undermine the core business of traditional banks. Like the internet of information, development will be extremely rapid. During the next decade, a competitive, regulated array of De-Fi banking services will become increasingly fast, more secure, cheaper, and more personalized.
As for decentralized financial markets, these already exist in their thousands, fuelled by crypto assets and their derivatives. They are more competitive, innovative, and accessible than traditional markets -- but they are not yet safe. Regulators are on a very, very steep learning curve and will need to expand very quickly to keep pace with these developments.
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