DeFi and the Future of Finance
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DeFi and the Future of Finance

Campbell R. Harvey, Ashwin Ramachandran and Joey Santoro
Wiley, 2021
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Visionary

Recommendation

After the record run of bitcoin and other cryptocurrencies, you might wonder what’s next for blockchain-based finance. Professor Campbell R. Harvey and crypto experts Ashwin Ramachandran and Joey Santoro offer a bold answer: a whole lot. They argue that decentralized finance will bring financial services to the unbanked masses, and eliminate fees and delays for everyone else. Dubious readers might question if all this is a tad ambitious, but blockchain believers will likely eat up every word of this concise treatise. Whichever camp you’re in, you’ll appreciate this glimpse of finance’s potential future.

Summary

The traditional financial system isn’t meeting society’s needs.

Legacy finance is problematic in many ways, not the least of which is that it imposes high costs on consumers and businesses while offering little in return. The result is that the traditional financial system stunts economic growth. There’s an alternative, one presented by the burgeoning blockchain: Decentralized finance (DeFi) is a promising system that encompasses cryptocurrencies and other innovations, including stablecoins, prediction markets and decentralized exchanges. Ultimately, DeFi could be an “internet of money” that removes much of the friction endemic to conventional finance.

Even as technology has changed dramatically, the fundamental underpinnings of the banking system have barely evolved over the last century and a half.  The fintech sector has emerged to spur innovations that remove some of banks’ inefficiencies. But the powerful and deeply entrenched financial industry has little incentive to change. Bitcoin provides a compelling proof of concept: Launched in 2008, this decentralized store of value comes with a self-imposed cap of 21 million coins...

About the Authors

Campbell R. Harvey is a professor of finance at Duke University and a research associate at the National Bureau of Economic Research. Ashwin Ramachandran is a general partner at Dragonfly Capital. Joey Santoro is founder of Fei Protocol.

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