SK securities firm released a DeFi report
Han Dae-hoon, an analyst from SK Securities, and Lee Jae-yoon, a research assistant, issued a report on Sept. 18 about the progress of decentralized finance (DeFi) in Korea. It is the first time a brokerage house in Korea has issued an official report on the issue. #Merits of DeFi The SK Securities report said the strongest benefit of DeFi is its decentralization. While credibility is considered the most important element in finance, it said decentralization could solve various instabilities derived from the current centralized system. DeFi doesn’t have any institution that guarantees its credibility but runs separately based on cryptocurrency and codes. The report also said DeFi could run more efficiently. While the current system requires people to prepare a number of documents to file for loan approval processes, DeFi utilizes blockchain-based smart systems to eliminate unnecessary steps. Money transfers to overseas banks which took an average of two to three days under the current financial system take only about 10 minutes with the new system. The report also said the DeFi system is open to all customers despite their region. According to the report, some 2.5 billion people globally don’t have access to bank services and 1.7 billion people don’t have bank accounts. These kind of people are increasingly becoming reliant on cryptocurrency-based peer-to-peer money transfers. The report said these isolated populations could utilize DeFi systems better than anybody. #Fast expanding deposit The report addressed total value locked (TVL) in relation to DeFi. “DeFi TVL reaches $8.9 billion ($10.5 billion as of Sept. 18) and is expanding fast,” the report said. “In 2019, it recorded $200 million and early this year $690 million.” The report also explained background information about some leading DeFi projects such as MakerDAO and Compound as well as what’s called yield farming, where investors can move money from one pool to another to take profit from interest differentials. #Derivative market formed It also explained that the DeFi market is not only focused on simple deposits, loans and liquidity provisions, but also is in the making of derivatives as well. For example, in the case of MakerDAO, people can additionally purchase Etherium through MakerDAO’s cryptocurrency called DAI, which is actually a borrowed loan backed by Etherium. If this mechanism continues, people can make leverage investments. People can also utilize interest margins to make profit. MakerDAO and Compound offer deposit and mortgage services but there can be trades made through interest differentials. “This kind of trade is happening right now because there isn’t enough liquidity in the market compared to traditional markets,” the report said. “However, it also means that there are much more opportunities for investors.” #Hurdles persist The report went on to say that ICOs (initial coin offering) first acted as a nice opportunity for startups to attract investment but deteriorated as people started to misuse the system. DeFi could also end up like this as the latest Yield Farming is criticized for creating a bubble. “While DeFi intends to easily offer financial services to everybody without having to have the unnecessary intermediary,” said the report. “But unlike the intention, a lot of ordinary people are feeling the hurdle in using DeFi.” Like Security Token Offerings (STO), if DeFi’s shortcomings could be overcome, securities companies will increasingly use the new system, the report said. It emphasized that DeFi is a field to be studied as the potential of digital finance and digital assets seem high.