🇺🇸 English version
Decentralized Finance (DeFi) platforms are designed to emulate and, in some cases, enhance the functions and services traditionally provided by banks and financial institutions. They achieve this by leveraging blockchain technology, smart contracts, and decentralized governance mechanisms. The core roles and jobs that DeFi platforms imitate include lending and borrowing, liquidity provision, asset exchange, risk management, and governance. Here's how DeFi platforms coordinate these functions in a decentralized manner:
Lending and Borrowing
- Traditional Banks: Offer loans to individuals and businesses, using deposits as a funding source. Interest rates are set based on various factors, including the central bank's rates, the bank's liquidity needs, and the borrower's creditworthiness.
- DeFi Platforms: Use smart contracts to facilitate peer-to-peer (P2P) lending without intermediaries. Interest rates are often algorithmically determined based on the supply and demand for specific cryptocurrencies or tokens.
Liquidity Provision
- Traditional Banks: Use deposits to provide liquidity for loans and withdrawals, managing this liquidity to ensure they can meet demand.
- DeFi Platforms: Utilize liquidity pools where users can deposit their assets to facilitate trading and lending on the platform. Liquidity providers earn fees based on the trading volume or interest from lending activities, incentivizing them to contribute to the pool.
Asset Exchange
- Traditional Banks: Facilitate the exchange of assets through over-the-counter (OTC) trading or by acting as intermediaries in stock and bond markets.
- DeFi Platforms: Offer decentralized exchanges (DEXs) that allow users to trade assets directly with one another using liquidity pools instead of traditional market makers. Prices are determined by algorithms (e.g., Automated Market Makers or AMMs) based on the relative supply of assets in the pools.
Risk Management
- Traditional Banks: Use diversified investment portfolios, insurance, and regulatory capital requirements to manage risk. Credit risk assessment is a crucial function, involving the evaluation of borrowers' creditworthiness.
- DeFi Platforms: Employ overcollateralization and cryptographic mechanisms to manage risk. Smart contracts automatically enforce the terms of contracts, and the open, transparent nature of the blockchain facilitates risk assessment. Some platforms use decentralized insurance protocols to mitigate risks.
Governance
- Traditional Banks: Governed by a centralized entity, with decisions made by a board of directors and executive management according to the regulatory frameworks.
- DeFi Platforms: Often governed through decentralized autonomous organizations (DAOs), where token holders vote on key decisions, such as changes to the protocol or allocation of treasury funds. This allows for a more democratic and decentralized decision-making process.
Coordination through Incentives
DeFi platforms coordinate these functions and the participation of various actors through carefully designed economic incentives and penalties, encoded into smart contracts. These incentives ensure that participants act in ways that support the platform's health and success:
- Liquidity Providers are incentivized with transaction fees and governance tokens, encouraging them to contribute assets to liquidity pools.
- Borrowers and Lenders are matched algorithmically, with interest rates dynamically adjusting to balance supply and demand, ensuring fair compensation for lenders while providing access to capital for borrowers.
- Traders benefit from the liquidity and 24/7 availability of DEXs, with lower fees than traditional exchanges and no need for an intermediary.
- Validators and Node Operators (in proof-of-stake blockchains) are rewarded with transaction fees and native tokens for validating transactions and maintaining the network's integrity and security.
In sum, DeFi platforms emulate the roles of traditional banks by decentralizing the functions of lending, liquidity provision, asset exchange, risk management, and governance through the use of blockchain technology. They coordinate these functions through a combination of economic incentives and community governance, aiming to create an open, transparent, and efficient financial system.