Text: Jeremy Guzmán
In a highly centralized society, most people will rely on banks to keep and protect the safety of their assets, even though banks only provide negligible deposit rates. In order to obtain a higher rate of return, others will choose wealth management companies or stock brokers to monitor and execute investment strategies.
Nowadays, both banks and asset management are things we have become accustomed to. However, most of these banking services are very inconvenient, and only people living in developed countries where a stable financial system has been laid can enjoy these services.
In fact, there may be 1.7 billion people in the world who do not have access to or adequate banking services. In other words, 31% of the world’s population cannot enjoy any basic financial services. Another meaningful number is that there are 4.78 billion active smartphone users in the world-that is, 61.51% of people already own a smartphone.
Huh? What do you mean by this? What does it have to do with DeFi?
It’s very simple, because there are more people using mobile phones than those who have bank accounts in the world, and considering the speed of new banks and the increasing acceptance of cryptocurrencies, people no longer need to rely on centralized banks. Facilities come to enjoy financial services.
Regardless of the service, all you need is a smartphone and internet connection, nothing more.
The rise of decentralized finance
Compared with traditional finance, DeFi has brought tremendous progress. It can empower everyone and enable everyone to create an autonomous and sustainable cryptocurrency investment portfolio.
Just like the services we can get in the traditional financial industry, DeFi can also provide: investment funds, exchange open-end index funds (ETF), high-yield savings instruments, passive income opportunities, and so on. And DeFi provides fully autonomous and automated products.
In fact, this is a large-scale upgrade of traditional services. It is expected to replace the slow, territorial, and centralized banking infrastructure, and replace it with global, non-stop financial services, and you can use a smart phone no matter where you are in the world. The kind of visit.
Therefore, nowadays, everyone does not have to have an identity first and then be allowed to enter a traditional financial system. Everyone can obtain these alternative financial services that can match traditional services.
Here are a few examples.
Three banking functions that no longer need a bank
Let’s talk about three banking functions that DeFi is ready to replace:
1. a savings account
From Wells Fargo to Compound
Savings account is a basic service in the traditional financial field.
But banks can only provide you with a negligible return on your deposits with them. In the DeFi world, there are a large number of options that can provide people living in any corner with returns that are orders of magnitude higher than common savings rates.
Compound is an obvious example, because it provides users with services for lending and borrowing cryptocurrency assets at floating rates. For example, people who provide assets for Compound’s currency market can earn interest on the corresponding assets (and COMP tokens!) – and users have many different forms of dollar equivalents to choose from.
The interesting thing about lending money to the Compound currency market is that it is almost risk-free, because the borrower must provide excess guarantees for their debts. In other words, this design makes it possible for lenders to make loans without having to exchange paperwork or provide identities-as long as you have an Ethereum address. (Of course there are other risks.)
The entire process is automated and trust-free.
To use such a currency market to earn interest, you only need to:
- Get started with an Ethereum wallet (such as Metamask browser plug-in wallet, Argent smart wallet, Dharma, or other hardware that supports Web3 functions)
- Choose the asset you want to provide (U.S. dollar equivalents such as USDC, DAI, USDT generally provide the best interest rate)
- Send your chosen token (such as DAI) to the corresponding fund pool
- Start earning interest in real time!
It’s that simple. In a traditional savings account, you can deposit cash in the bank and earn interest. The same function can be achieved in Compound Finance. As long as you deposit funds, you can immediately start earning interest in real time. That’s right, you don’t have to wait for the bank to pay you interest once a month, you can get interest every minute and every second.
(Note: Compound is just one of many interest rate agreements. There are many such agreements, each with its own market and its own savings interest rate. If you have the heart to make your money always get the highest rate of return, you can understand Some new products. There are also some aggregators, robots are designed to help you optimize your deposit portfolio and get the largest annualized rate.)
2. Cryptocurrency Investment Fund
From Vanguard to Set Protocol Before we understand “cryptographic currency investment funds”, it may be better to briefly introduce what “investment funds” are. An investment fund means that investors entrust their funds to professional investors for management, allowing professionals to diversify their investments in the hope of obtaining higher returns than deposits. There are many forms of investment funds, from stock funds, fixed income funds, money market funds, to mixed-form funds. All these funds are actually composed of a basket of stocks, bonds, indexes, government bonds, and so on. Unlike traditional finance, which allows fund managers to allocate capital, DeFi’s solutions allow us to allocate capital to specific people or design robots that execute certain strategies. A typical example is Set Protocol and their product, TokenSets. Set Protocol is a non-custodial asset management platform that provides automated, tokenized trading strategies. These strategies are called “Sets”, which are similar to traditional investment funds and consist of a basket of assets. However, these assets are all assets generated on the blockchain. There are two types of “Set” on TokenSets:
- Social Trading Sets
- Robo Sets
Social Trading Sets are investment portfolios that are actively managed by someone on the platform. Each Set is independently managed, has its own time dimension, risk-taking requirements, trigger indicators, and its performance is also different. Similar to investment funds, Social TokenSets also have management fees associated with their strategies, which will be passed to Set traders. These fees generally include performance fees, buy-in fees and streaming fees-all rates are set by traders. The strategy of Soical Set is still executed by human judgment, but Robo Sets can execute the programmed strategy. So it will not rely on individual trading strategies and biases, it will always execute programmed rules. For example, TokenSets provides a passive transaction set such as ETH RSI 60/40 Set . Look at the description of Set:
The ETH RSI 60/40 Mixed Income Set attempts to capitalize on ETH price movements by detecting the speed and magnitude of their movements. As long as the Relative Strength Index (RSI) drops below 40 points or rises above 60 points, ETHRSIAPY will automatically trigger rebalances to show price movements. If the ETH RSI is lower than 40, the Set will convert ETH to Compound USDC, allowing you to enjoy interest income in a bear market.
As mentioned above, the ETHRSI 60/40 Set only executes a specific strategy and reacts to changes in the price of the underlying asset (ETH in our case).
TokenSets are a very good way to test an automated trading strategy to test whether robots or others can beat the market-whether your measurement is hoarding BTC, ETH or holding the S&P 500 index. Readers who want to know the performance of each TokenSet can read here.
3. Mobile Payment
Mobile payment from Cash App to Dharma has developed rapidly in the past few years. Venmo, Cash App, and other owners are all competing for market share. But all these applications depend on the banking infrastructure. Although Ethereum inherently supports global, peer-to-peer payments, it is not so convenient to use the MetaMask of the Ethereum address to do this. Therefore, we need some payment applications that can not only take advantage of the functions of Ethereum, but also complement the intuitive user experience to compete with Venmo and CashApp. One of the projects moving in this direction is Dharma.
With Dharma, you don’t have to bother to memorize or copy down the set of 12 or 16 mnemonics. Instead, they used a back-to-the-basics method-login with email and password. The important thing is that although they have implemented traditional login methods, users still have complete control over their funds. All funds are managed independently by users. Like Venmo and Cash App, if you want to get a deposit of fiat currency, you still have to provide your bank account. Otherwise, you can only use your other Ethereum address to deposit money into your account. If you deposit U.S. dollars (USD), Dharma will automatically convert these funds into Dai in the background and deposit them into the Compound agreement. But you can’t see it at all, all of this is hidden. In other words, when you use Dharma, you will automatically earn interest at real-time floating interest rates, and you can also send US dollars to any corner of the earth. All this can be done through an ordinary account. It’s like Venmo beaten up. Isn’t it cool? This is an extremely bold method that not only takes advantage of the peer-to-peer transaction features of Ethereum, but also maintains the convenience and familiarity of traditional mobile payment applications.
Easter Egg: Portfolio Tracking
From Mint.com to Zerion , you have spent a lot of time wandering through the maze of DeFi. Perhaps what you need most is a reliable asset management interface to help you track the performance of your new investments. . Zerion is the simplest tool to track and manage your DeFi portfolio. Interestingly, after successfully connecting to your wallet, you can directly use Zerion to trade, save, provide, and borrow assets.
In fact, Zerion is a one-stop platform for tracking and managing DeFi assets.
Conclusion
The DeFi ecosystem is catching up with traditional finance in value creation. It is really disrupting an industry that may not have changed for decades. Anyone in any corner, as long as they have a smartphone and Internet connection, can obtain a variety of financial services without having an identity, a written contract, and any cumbersome procedures. This is a huge improvement. Just as importantly, these DeFi services were far from today’s size a year ago. Although there is still a long way to go before we can truly provide banking services to those who lack the banking infrastructure (and liberate those who need to rely on banks), the proliferation of open finance must not be underestimated. It is only a matter of time before billions of financially marginalized people join this system. Just wait and see.
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