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- DeFi ecosystem is the first in the cryptosphere that showed resurgence after the market crash
- With DAO’s governance, the decentralized financial industry has the potential to transform the traditional financial system
- Following the scenario in the scentor Mark Cuban has been found bullish against it
- Cuban Acknowledges the risk contained still he believes the sector is the future of personal banking
DeFi sector is the first to show resilience after the crypto market crash. In contrast, since the beginning of this year the DeFi protocols have seen tremendous growth. According to the data from DeFi Pulse, the Total Value Locked (TVL) in the industry has grown from approx $15 billion to more than $62 billion. Following the craze in the sector Mark Cuban, the billionaire entrepreneur and investor, claimed that traditional banks should be scared of virtual assets-based decentralized finance (DeFi).
How does DAO help the decentralized finance sector?
Decentralized applications (dApps) aim to recreate traditional financial systems with the help of digital currency. On the other side, Decentralized Autonomous Organizations (DAO), are similar to traditional corporations or organizations. Rather than having a centralized figure, all the members of the DAO can vote for decisions and rules. Indeed, the votes help create a smart contract on the blockchain. Ultimately it helps the dApps and other projects by governing and overseeing it.
For instance if a user lends through DeFi the experience would be like a traditional bank. And the protocols in the industry will be governed by the members of DAO.
Mark Cuban is bullish over the DeFi industry
Following the structure of the DeFi protocols Mark Cuban is attracted towards the sector. Cuban has believed that the industry could be a senior competitor of the traditional banking system. In a blog post published on Sunday, Mark Cuban wrote that several financial institutions should be concerned about the DeFi industry. Moreover, traditional banks should be scared of the same.
Why do decentralized protocols attract Cuban?
Cuban used an example of AAVE protocol to explain whether DeFi could compete with mainstream banks. The billionaire investor mentioned that AAVE, seems similar to its competitor Compound as a bank. However, AAVE is not a bank as it is a completely automated platform that doesn’t require a permission of any.
The protocol has no building, no bankers, no toasters, no vaults, no credit ratings, and more.
On Aave’s platform everything is entirely controlled by smart contracts. Indeed, the user doesn’t require any approval to take loans, which saves the processing time.
On the other hand, DeFi platforms don’t necessarily require large capitals for establishment. Cuban explained that investors, creditors and other businesses aren’t required for transactions. Despite this, liquidity providers can themselves help transactions to take place. Hence, the factor makes the industry capital and operationally more efficient than mainstream banks.
Cuban acknowledges the DeFi’s risk
The automated part of the DeFi industry makes it risky and hot for users and liquidity providers. The sector is unlike the mainstream banks. Indeed, DeFi has no regulation, and insurance regarding the funds of the users when they use the protocols. Moreover, the loans are collateralized with other digital currency. Hence borrowers using the protocol cannot be held accountable if they are unable to pay back the funds.
Several reports have considered that liquidity providers shouldn’t put in more than they can afford. Simultaneously, a report from CipherTrace concluded that in the first quarter of this year the DeFi users have already lost more than $156 million in hacks and frauds.
Mark Cuban also acknowledges the risk consistent with the industry. Cuban explained that there are technicalities to sort out with all of this technology. Still, the approach is the future of personal banking. Hence, despite the risk the industry has been particularly buzzy lately.
Mark Cuban is aDeFi’s liquidity provider
Cuban has also invested in the DeFi sector. Notably, the billionaire investor is also a liquidity provider. Apart from the DeFi industry, he also has invested in many crypto start-ups in the cryptosphere. Moreover, the billionaire entrepreneur has a portfolio of multiple cryptocurrencies that includes Bitcoin and Ethereum. Indeed, Cuban is a bigger advocate of the technology that can transform the global financial system.
