Mark Cuban explains why crypto-based DeFi will disrupt banks
Billionaire investor Mark Cuban is optimistic about the growth of DeFi, or decentralized financeapplications, and thinks that they will pose a challenge to traditional banks.
For him, “the fundamental advantage of DeFi is that it simplifies borrowing for personal purposes,” said the Cuban. tweeted Thursday in response to a debate on DeFi.
“It’s complicated to borrow money from a bank,” he said. “And [DeFi] allows anyone with funds to also be a lender.”
DeFi apps aim to recreate traditional financial systemssuch as banks and stock exchanges, with cryptocurrency. Most run on the Ethereum blockchain.
As Cuban mentions, through DeFi lending, users can lend cryptocurrency, like a traditional bank does with fiat currency, and earn interest as a lender. The barrier to entry for borrowing is low compared to that of a traditional system. In most cases, the only requirement for taking out a DeFi loan is the ability to post collateral with other crypto assets.
“[B]businesses, decentralized or not, tend to benefit when they offer customers the path of least resistance to get what they want and/or need,” Cuban said. “DeFi is not monolithic. It’s competitive. It will evolve to meet customer needs.”
Cuban admits that DeFi won’t “automatically shut down banking” because “banks aren’t stupid,” but he predicts that DeFi apps will still disrupt the traditional space. “As [how] fintech has curated features that have opened doors to applications that have attracted millions of customers, I believe DeFi will evolve in the same way,” he said.
“Some industries are averse to change. That’s the innovator’s dilemma. Banks could have simplified/automated to the point that DeFi wasn’t needed. They didn’t. They’re so stuck in the heritage [operations] they are disrupted by mere fintech,” Cuban continued.
On the one hand there is is not a regulation or insurance on your money when using DeFi, and due to the volatile nature of cryptocurrency, investors should be comfortable with large price swings. In the event of a downturn, crypto assets used as collateral can significantly lose value and some investors may see their positions liquidated. That’s why experts warn investors to only spend what they can afford to lose.
Even Cuban admits that “DeFi is a platform that can be scammed”.
Looking ahead, Cuban predicts that the “big players” in DeFi will “welcome the regulation” as it will “allow the industry to grow and still have a Wild West look,” he said.
Cuban a has long been a supporter of DeFi and the crypto space as a whole. He has a extensive crypto wallet with investments in bitcoin, ether, dogecoin and other altcoins, as well as NFT or non-fungible tokensand many blockchain companies.
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