Decentralized finance (DeFi) could be a more disruptive blockchain use case than Bitcoin in finance, according to a recent Bank of America (BofA) report, per Insider. The most-used blockchain application so far is cryptocurrencies, like Bitcoin, which act as alternative investment products or means of payment. DeFi is also a blockchain use case, but acts as an alternative to a wider range of financial services by doing away with financial intermediaries.
DeFi applications aim to bring greater efficiencies to modern finance, and VC funds are starting to be convinced of their potential.
However, DeFi’s disruptive potential will not be realized in the wider financial sector anytime soon, as the space remains unregulated. Financial firms that act as intermediaries in the current financial system are heavily regulated, and consumers can rely on bodies like the Securities and Exchange Commission (SEC) to police the sector and remedy any faults. But there are no legally recognized, centralized entities that can be held responsible for smart contract problems, such as a mistake in the code. The SEC has not mentioned DeFi in planned crypto-specific regulations, while the UK Treasury’s latest consultation specifically states that DeFi will not be in scope of any upcoming regulations. The lack of protection will likely hinder DeFi adoption as most consumers and financial institutions are unlikely to put all their trust in blockchain technology to safeguard their money until such services are brought in scope of regulations.
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