To function effectively, society has long relied on people who have faith in their institutions. With the COVID-19 pandemic and widespread management failures, this belief is being tested like never before.
Nowhere is the fall in confidence more pronounced than in the financial services sector. On the 2021 Sentiment Scale, Edelman found that only 53% of US respondents said they trust those in the United States who “do the right thing”, down 5% from the 2020 survey. You can see this in the battle between Main Street and Wall Street that erupted at the January GameStop rally. This demonstration is not just a “short-term squeeze”, it highlighted the fact that many young investors simply do not believe in financial institutions.
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The shift away from institutional power is also evident in the explosive growth of decentralized finance, or DeFi. Using decentralized blockchain applications, DeFi allows people to borrow or borrow money, trade coins, and earn interest on savings. Their transactions are governed by smart contracts included in the program; No banking, brokerage or exchange required.
With the first digital generation, DeFi will be standard
To illustrate how quickly DeFi is taking off, check out Total Locked Value, or TVL, which is pumping into the DeFi sector. TVL is the best way to signal Defi’s success, as smart contracts usually require the counterparty to provide security for any transaction. As of mid-March, about $ 59 billion had been registered through DeFi. A year ago, that figure was about $ 500 million.
The common cryptocurrency market, led by Bitcoin (BTC), is worth over $ 1 trillion, so there is a long way to go before DeFi becomes the headline. However, remember: It took Bitcoin almost 10 years before institutional investors actually started buying – and it looks like it will take DeFi half the time to reach a similar breakthrough.
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Why? Because young investors like GameStop traders understand the concept of digital scarcity and embrace the fact that intangibles have value. This is why they buy non-perishable tokens as a way to trade digital assets. The most famous example of the NFT phenomenon was the Christie’s auction in March, which featured a digital poster by artist Beeple, bought for about $ 70 million in cryptocurrency.
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What was once modest cryptocurrency activity promises to be a flood when most baby boomers retire. The historic event now taking place represents one of the largest asset transfers in history. According to the Big Four auditing firm PwC, by 2061, some $ 59 trillion of Boomer’s decommissioned assets will be transferred to recipients of digital assets.
It is this next generation that will look for ways to invest in heritage and choose systems and platforms they trust. With a choice, Millennials and Gen Z will always choose the cheapest and most affordable investment option available 24/7.
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When DeFi picks up steam, expect a fight against old institutions.
Of course, banks are banks that, as you might expect – along with other old institutions – are struggling to defend their territory. They know that in order to remain competitive, they need to increase longevity, reduce billing times, and improve user functionality.
They are already starting to integrate smart contracts and other DeFi technologies into their existing platforms – to improve efficiency and keep up with market demand for more transparency and customer privacy. In its February announcement by the Depositary Trust and Clearing Corporation, DTCC proposed reducing the settlement cycle for US equities from two business days to one.
Prior to that, the planned implementation of DTCC may take two years – still depends on the moment of encryption. In a world that is rapidly moving towards a 24/7 model, securities companies committed to industry default will soon be abandoned.
A promising road ahead, but not without obstacles.
As DeFi evolves rapidly, it will take time for the capabilities to become what they need to be for widespread adoption. The network commission required to trade on decentralized exchanges like Uniswap is still high (although it is expected to decline over time).
There is no denying the ability to buy or trade digital assets 24 hours a day.