The magic of blockchain can be boiled down to a single word: Decentralization. But what does it promise for finance, an industry best known for low trust, high fees, and excessive bureaucracy?
What is Decentralization?
Decentralization can best be described in terms of its opposite: Centralization, which refers to the concentration of administrative power in the hands of large institutions and even larger, often transnational regulatory bodies. They have the capability of setting and changing the rules at their discretion while, by virtue of their authority, expecting everyone else to fall in line. In order to function, centralized systems require trust in large bureaucracies – or middlemen – who operate for the most part behind the scenes. Centralized finance is perhaps the best example of this kind of system.
If centralization concentrates power, then decentralization distributes it, imparting choice to all who consent to participate. Decentralization is only now possible on a large scale because of blockchain, a fundamentally disruptive technology that many speculate will change the world in much the same way the internet did at the close of the last century. IBM defines blockchain as “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.” In simpler terms, a blockchain is a secure and self-updating database, which, when paired with smart contracts, allows for dynamic and trustless transactions. These transactions are trustless because, unlike centralized systems, they don’t require trust – anyone can execute and verify transactions as long as they are carried out on the blockchain. The potential of this is yet to be fully realized, but with the popularization of decentralized finance (or DeFi,) the benefits of decentralization are becoming more apparent.
Here are three major advantages of decentralization:
1. Financial Autonomy
Today’s mammoth financial complex relies upon a network of intermediary bodies which have systemically misaligned incentive structures. Those who work in finance are responsible for facilitating a profitable flow of client capital while simultaneously enriching the corporations they work for. While these two objectives should be theoretically aligned, self-interest frequently comes into play, as seen by the numerous scandals that continue to plague the financial industry.
Today there is an emerging alternative: DeFi replaces these intermediaries with automated operations that the user is in complete control of. For the first time in history, this means that the retail market can trade, lend, borrow, and manage their funds with total autonomy.
EQIBank plans to be at the center of this transition by using its licensed and regulated online banking platform to power EQIFI, a protocol that will include a suite of new decentralized financial products that will give investors even more avenues to earn a return on their capital.
2. Community Governance
Beyond control of one’s own capital, the advantages of DeFi go one step further: Decentralization introduces the opportunity for investors to pool together and democratize control of the platforms they use. The implications of this are astounding. Imagine if individual shareholders of Facebook or Amazon could vote on how either company could better serve its users. The likelihood of Zuckerberg or Bezos sharing decision-making authority with consumers may seem laughable, but in DeFi, it’s standard practice. Decentralized exchanges, lending protocols, and EQIFI, in particular, have this capability built into their tokenomics so that their protocols are decentralized in the fullest sense of the word.
3. Innovative Financial Products
Decentralized smart contracts open the door for DeFi’s third major benefit: the tools to create brand new financial products. Using open-source technology, developers anywhere can now both decentralize existing centralized strategies like lending/borrowing or create radically new financial protocols that are unique to DeFi, like yield farming.
Because smart contracts are simply execution orders fit to run when predetermined conditions are met, their only application limit is defined by developer creativity. EQIFI, for instance, is developing four decentralized financial products set to innovate the lending/borrowing space and automate yield aggregation.
EQIFI will be at the Center of Decentralized Innovation
Because the future of the financial industry likely looks to be a hybrid of today’s institutional infrastructure and DeFi’s decentralized utility, EQIFI is poised to become an industry world leader.
Powered by EQIBank, EQIFI will offer the best of both worlds and will continue to embrace innovation as the crypto space evolves. To stay updated on EQIFI’s progress, follow the official Twitter and Telegram – the impending token launch is not an event to miss.