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Decentralised Finance is the Hottest New Player in Cryptocurrency Markets

CC0 / / Bitcoin
Bitcoin - Sputnik International
More players from the traditional finance world are participating in the cryptocurrency industry. Two new buzzwords, DeFi and yield farming are driving a new surge of investment. Jeremy Cheah, an Associate Professor of Crypto-Finance at the Nottingham Business School spoke to Sputnik about some of the new developments in this industry.

Jeremy Cheah, Associate Professor of Crypto-Finance and Digital Finance at the Nottingham Business School, has shared his views on the matter.

Sputnik: Can you explain what decentralised finance is?

Jeremy Cheah: Decentralised finance simply means financing without a centralised organisation, authority or system that governs it. It uses blockchain technology, which allows users to carry out peer to peer transactions through the use of smart contracts. And as a direct result of that, financial intermediaries will no longer be necessary. And it's also based on mutual trust and privacy, unlike in traditional finance. So basically, that's the crux of it. I mean, there are a lot of details to it, but fair to say that, you know, that's what decentralised finance is all about.

Sputnik: Why are there so many mainstream players getting involved with cryptocurrencies?

Jeremy Cheah: There are several reasons as to what mainstream players are getting involved. Basically, you know, if you look at it, there are three main groups of players. You've got the high street financial institutions, you've got the asset management companies, and then finally you've got the regulators.

FILE - In this March 22, 2019 file photo, an American flag flies outside the Department of Justice in Washington. The Justice Department has seized millions of dollars from cryptocurrency accounts that militant organization abroad, including al-Qaida and the Islamic State group, relied on to raise money for their operations, officials announced Thursday. (AP Photo/Andrew Harnik) - Sputnik International
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So first with interest rates venturing into the negative region, it is no longer attractive for those involved in fixed interest payments, you know, people like bondholders, pensioners living on annuities or even people who save money really to earn returns. So, basically, you invest in stable coins with compound, compound is basically a decentralised exchange. Last month, you will pay your 6.75% annualised rate of interest.

So, you can see the traction that is potentially within interest rate being either zero going negative, and then you find that now, if you go into a decentralised finance or financial market, it's actually paying you not only a positive return but a very high positive return as well.

So that's the first reason, the second reason is that mainstream players such as high, high street financial institutions, they are those financial intermediaries that will be very much affected if there are many adopters of this new way of carrying out their financial transactions. So in order for them to survive these high street financial institutions will have to innovate and come up with high quality financial products and services that can rival those of in the decentralised financial market.

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