Guide
The core of this recent round of defi boom is the success of the decentralized exchange market. This is not accidental, but a re-show of the great power of “decentralization” in the crypto economy. This success is a natural evolution of the decentralization of basic currency and the decentralization of asset issuance in the financial sector.
Since the 1980s, people have repeatedly tried to use asymmetric cryptography to build an endogenous currency system on the Internet, but they have all failed. Satoshi Nakamoto concluded that the main reason for the failure of the predecessors is that these currency systems rely on the center. He believes that only decentralization can break away from third-party credit and establish a successful cryptocurrency.
In 2009, on the basis of asymmetric cryptography, Satoshi Nakamoto introduced a distributed consensus mechanism to build a decentralized currency system-Bitcoin, and also created a technical framework for mankind to build a decentralized social economic system- —Cryptographic consensus (asymmetric cryptography + distributed consensus), which is what we often call “blockchain”.
From the time when it was launched in 2009, there were only three people involved. In 2017, it became a household name in the world. Bitcoin was declared dead hundreds of times but survived and achieved great success. Its vitality lies in “decentralization.”
“Decentralization” brings high efficiency to the cryptographic consensus system.
The efficiency of the decentralized currency system built by Bitcoin is much higher than that of the centralized currency system-the banking system. A wallet developed by a team of 10 people can provide users all over the world with Bitcoin currency payment services. The corresponding banking business requires a huge consumption of manpower, material resources and financial resources. High efficiency is the foundation of Bitcoin’s success.
“Decentralization” prevents the cryptographic consensus system from being killed.
On the premise that it can improve economic efficiency and have supporters, the decentralized structure makes such a system always alive. After various blows and restraints, Bitcoin’s price dropped more than 80% more than once, but it survived tenaciously. “Can’t die” to wait for success.
Bitcoin has waited for the success of decentralized cryptocurrency. The crypto tokens in 2017 achieved the success of the issuance and circulation of decentralized securities. The key to success is also brought about by decentralization: 1) High efficiency, 2) Inability to die.
Traditional digital asset issuance and circulation costs are very high, the process is very long, and the scope of circulation is also limited by the scope of the center. The issuance of securities based on erc20 only costs tens of dollars, which can be completed within an hour and can be circulated globally once issued. Even if September 4 were banned, it could not stop its outbreak.
It now appears that most of the projects that issued tokens in the past failed, but the loss of supervision and enthusiastic investment and financing, and the free issuance and circulation of crypto assets have indeed succeeded. The most typical case is that it has become a token issued and circulated on multiple public chains, and its market value is second only to Sum.
The core of this round of defi outbreak is the success of the decentralized exchange market. After realizing effective incentives for liquidity providers through liquidity mining, the power of decentralization has once again emerged. People flocked to provide liquidity, achieving a better exchange experience, lower costs, and higher autonomy than centralized exchanges. Uniswap’s transaction volume has surpassed Binance.
Provides higher efficiency than centralized exchanges. Even if some projects will fail in the competition, providing free exchange and pricing mechanisms for cryptocurrency and crypto assets is irreversible. High efficiency and inability to die are also the foundation of success. We see that major exchanges have actively embraced defi.
So far, in the financial field, basic currency, asset issuance, asset circulation, asset exchange, and asset pricing have all been decentralized, and the decentralization of lending and financial derivatives is also evolving rapidly. Defi will have an increasing impact on traditional finance.
Currently, the biggest problem with defi is that finance fails to serve the economy. The efficiency improvement brought about by financial decentralization is mainly used for speculative activities, and cannot serve other economic fields, and obtain continuous returns from the huge economic dividends brought by these services. To solve this problem, decentralization needs to be realized in more areas of the economy.
