Satoshi emailed a few edge case and fringe thought leaders in the finance and coding realm in 2008 proposing a new digital currency. His cash system was the first to truly work, and solve come of the endemic issues surrounding peer to peer cash systems. However, irrespective of this completely decentralized peer to peer cash system, the token is known as Bitcoin, lacked the complex imagined and interdependent ecosystem that is the global finance industry. Central Banks, governments, exchanges, and standard commercial providers issue stocks, bonds, credit, securities, and many other finance products. These institutions are all based on one thing, future growth, the expanse of the global G.D.P. pie. The only way for this positive bet on future growth to exist and support itself is credit.
Bitcoin by its very nature is a cash-based system, not a credit-based system. This important distinction is declared by Bitcoin’s predictive nature, by which its immutable in its very code. There is a finite amount of Bitcoin that will ever exist and is therefore deflationary. Therefore in order for traditional financial functions to work with an inherently different finance system, DeFi or decentralized finance was born.
DeFi, is a concept, executed by many firms, born for its ability to emulate, and therefore replace traditional or mainstream financial products, in the peer to peer world of immutable blockchains and cryptocurrencies. DeFi offers peer to peer loan platforms, stable coins which are pegged to the U.S. dollar and other currencies, and most attractively for speculative investors and savers, compounding interest on deposited funds into the systems. Each company provides varying rates, but a popular one in the U.S. is BlockFi. They offer 8.6% APY on stablecoins, 6% on BTC and just a little under that on a handful of other currencies. BlockFi, additionally allows users to choose which currency their interest is paid out in, for example, if you were to deposit Ethereum, you could choose to have your interest paid out in Satoshi, (fractional portions of Bitcoin).
This system largely supports the store of value narrative purported by crypto enthusiasts and bulls who are fleeing the centralized Dollar. Due to the U.S. debt recently hitting 25 Trillion, many are fleeing to cryptocurrency, DeFi, precious metals and otherwise to secure their savings from inflation or unforeseen collapse. Lastly, DeFi provides another arrow in the quiver of an ever-strengthening decentralized system that seems to foil the centralized finance sector, that is even considering negative interest rates domestically.
