Author: Andre Cronje
Compilation | Wu Talks about Blockchain
Original link:
https://andrecronje.medium.com/why-defi-14e961620ef9
Introduction: Andre Cronje, known as the "King of DeFi", is famous for his pioneering work in the field of decentralized finance. He did not initially get involved in blockchain, but worked as a developer and architect in multiple technology companies, accumulating rich programming experience. Around 2018, Cronje began to get involved in blockchain and cryptocurrency, and gradually became interested in smart contracts and decentralized applications by participating in code audits. His most well-known achievement is the creation of Yearn.Finance, an automated yield optimization tool that quickly made a huge impact in the DeFi field. Yearn.Finance has become an important part of the DeFi ecosystem due to its decentralized governance model and community-driven innovation, and its governance token YFI is also highly regarded for being fully allocated to the community.
In addition to Yearn.Finance, Cronje has also launched Keep3r Network and participated in multiple DeFi projects such as Hegic, Cover, and Pickle Finance. His working style is very independent and avant-garde, and he often releases new projects without extensive testing. This practice has caused a lot of controversy, especially when the projects have technical vulnerabilities. Despite this, his contribution to DeFi is undeniable. However, due to the tremendous pressure and public attention, Cronje announced his withdrawal from the DeFi community several times and expressed dissatisfaction with the high-pressure environment of the crypto community.
Later, Cronje turned to the Fantom project, a high-performance blockchain platform designed to solve the scalability problems of existing blockchains, which has more long-term development potential. His work in Fantom shows his interest in building a broader blockchain ecosystem. Over time, Cronje's views on DeFi have changed, and he has gradually tended to promote DeFi's compliance. He believes that although the decentralization and openness of DeFi are very important, in order to achieve long-term stable and secure development, DeFi needs to be better integrated with the traditional financial system and comply with relevant regulations. Therefore, Cronje's focus has shifted from complete decentralization to seeking a balance between innovation and compliance. This shift also reflects his thinking on the future development direction of DeFi.
The full text is as follows (published on August 28):
Before we get into the topic, let's discuss why we need finance? Before the emergence of currency, there was barter. I raise chickens and you grow wheat. I give you chickens and you give me wheat. One year, my chickens are not well raised, but I still need wheat, so I promise to give you more chickens next year. This forms an "I owe you" (IOU). Maybe you don't need more chickens, but your neighbor wants chickens, so you can trade this IOU to someone else. The most basic form of currency is this: a standardized IOU that everyone agrees is worth a certain value. Eventually, we started to measure everything with these IOUs.
So I accumulated some IOUs and started to worry about being robbed, and I needed a safer place to store these IOUs. So, the earliest banks were formed (originally churches kept the ledgers of these IOUs).
A respected man in the community wants to start raising cattle, and he asks the church to borrow some IOUs to start his farm. The church agrees, but he needs to pay more IOUs than he borrowed when he can pay it back, which is the interest. To secure these IOUs, the man needs to put up the deed to the land he purchased as collateral. The community members who deposited the IOUs are grateful because they get more IOUs, and the respected man is grateful because it enables him to start his business.
Finance, at its core, has always been about empowerment and putting idle assets to work. As fraud, crime, and society evolve, it becomes increasingly difficult to tell if someone requesting a loan is a “respectable person.” In today’s near-dystopian world, we are all reduced to a credit score, a number that determines whether we are a good financial candidate. If you are new to the new system, then in the credit bureau’s terminology, you have a “thin file,” which means there is not enough data to judge you, meaning it will be difficult to get a loan, and even if you qualify, the interest rate will be very bad. In addition, you need to have existing relationships.
This brings us to why DeFi exists. DeFi doesn’t care, DeFi doesn’t judge. Everyone is treated equally according to the rules of the system, which are open and transparent for anyone to view. When a traditional bank rejects your mortgage application, you may not even know why. In DeFi, if the loan is rejected, you know exactly why.
Interest (or yield) on loans, aside from labor and goods, is one of the purest forms of income. There will always be someone who needs capital to start a new business, or someone who needs help getting through a tough time. This type of income is infinitely scalable and pure, it doesn’t rely on any false incentives, it doesn’t rely on any external factors, it’s a simple supply and demand business.
The next form is barter, going back to the first paragraph, I have chickens, you have wheat. In today’s connected world, barter is still at the core of everyday business, but it can be hard to find a counterparty, or to find what you need. That’s why general marketplaces started to emerge, a place where people can come together on a weekly basis to sell and exchange goods. An automated market maker (AMM) is a platform for barter, just like in a marketplace you pay a small fee to sell your goods, in an AMM, providers also receive a small fee. This is also a pure form of income (or revenue). As long as there are people willing to sell and people willing to buy, this is infinitely scalable.
In DeFi, you don’t need to be an accredited investor to participate in this market. You don’t need to live in New York or work on Wall Street. There are no shady deals or brokers. What you see is what you get.
Take a look at the world’s seven largest industries:
Life and Health Insurance
Oil & Gas
real estate
pension
Car Sales
Direct Insurance
Commercial Banks
Even though these industries are out of reach for most people, they are still some of the largest industries in the world.
DeFi eliminates all of this and allows anyone willing to try to participate.
This is probably the most important cornerstone of any developing economy.
Everything else builds on this.
Trading and lending are the cornerstones of all of the above industries.
Of course, there are some twists in DeFi, swamped by false incentives, inflated returns, unsustainable revenues, but this is true in both traditional and decentralized versions. This in itself does not diminish the beauty of pure, transparent and fully democratized access.
DeFi is a core building block of a decentralized society, and this is just the beginning, with much more to come. We still have a lot of work to do before all seven industries mentioned above are on-chain, freely accessible, transparent, and open to everyone.
All humanitarian efforts happen when we as a collective have enough to share. Only through DeFi can we get to a state where we have enough to share.
