DeFi : The pin to the fiat money-bubble
We’re in unprecedented times, with trillions of money being printed from thin-air in the form of COVID stimulus, and desperate economy boosts. People have started to turn to Decentralized Finance, as the future of money.
In this article, we’ll be lightly touching on traditional finance i.e. CeFi, DeFi, and finally, DAFI.
The word Fiat, is Latin for ‘let it be’. In other words, just close your eyes and trust it. The issue isn’t governments, but the model of bank-issued money which consistently makes it’s holders poorer, and profits from borrowing & lending your assets.
Losing value
Inflation involves the debasing of a currency’s value through the increase in it’s circulation/supply.
You’ve probably heard of the special cases in hyperinflation, such as Venezuela’s Bolivars. This involved a 200,000% annual inflation in 2019. However, the US Fed, and the European Central Bank aim for inflation to stay between 2–3%.
2020 is scarily different. In June this year, the US Fed printed more money than from the year the US was founded until 200 years later. That’s 200 years worth of printing, compressed into 1 month, in 2020.
The real mask, created by central-banks, is more scary than this. Perhaps the only silver-lining to the 2020 crisis, is the realization that today’s money is flawed. Yet, we still deposit this fiat currency within our banks, whom leverage & lend it to others, and receive interest on it. In other words, they profit from your assets, and we are forced into this model as an only option, until now.
DeFi vs CeFi
This year, Decentralized Finance (DeFi) grew in value, with currently $13 billion locked in different DeFi protocols. For reference, this value was at $1 billion just 5 months ago, in June.
What is DeFi?
DeFi is an open world of finance. A range of financial features, controlled by you, with the single aim for everyone to become their own bank.
Why is this new?
It is the single alternative to centralized banking. DeFi requires no barrier of entry (financial, geographical or otherwise). It is several economies being created for the people to regain control of their finance. Lend your assets and receive interest, borrow from other people, and receive rewards for this too.
What is the issue with DeFi?
1) High fees. Currently it is easier to use normal CeFi banking.
2) Highly-inflationary. Most DeFi protocol’s and DApps release their native token to users, either to incentivise liquidity, staking or participation. In the early-phase of a new DeFi feature, or in a bearish-cycle, the fragile state combined with a hyperinflation model can kill this economy, entirely. (Most projects with high staking rewards often die in these phases).
The main reason why CeFi works, is because it is adaptive in nature, and can change/adapt to demand. For these issues, the current state of DeFi is not attracting the untapped market of new, mainstream people.
What makes CeFi work?
CeFi can flexibly adapt.
Banks can modify interest rates, making borrowing easier or harder. They can also modify their currency supply to become less or more available. Therefore, depending on the state of their economy, their financial infrastructure can adapt.
How can we create Blockchain’s that incentivize staking, or DeFi features that reward liquidity & participation, in a completely new, flexible way?
What is DAFI?
DAFI is staked for an intermediary, synthetic DFY. Rather than pegging to a stablecoin, DFY is pegged to the demand of DAFI, and therefore expands/constricts in quantity relative to the protocol demand.
Demand-pegged inflation
Instead of issuing out DAFI as a staking, liquidity, or participation reward. DFY is issued to users instead, as an intermediary, elastic token, which is burned in return for DAFI. This simply rewards early and long term liquidity, and incentivizes through the demand in the protocol.
Flavours
The unique property of DAFI, is the ability to prevent hyperinflation. Any DeFi platform or Blockchain protocol can create their own version of xDFY, which will be pegged to the demand of their own native token’s demand. xDFY (where x represents any token) is issued out in far lower reward rates, but expands in quantity as demand grows. This can replace the current, flawed model throughout not only DeFi but also Blockchain protocol’s and DApps.
DAFI — DeFi, imagined differently
The DAFI Protocol is unifying DeFi. Several use cases can be built on top of the DAFI-DFY token model, with the core economics far more sustainable.
DAFI could support most DeFi features e.g. Lending & DEX’s — and even a less inflationary model of staking for Blockchain’s. DAFI also aims to further expand to create trust within these decentralized systems (more than just via inflation) through the minting of reputation-like NFT’s.
For more information, read the Litepaper here. You can also say hello in the community Telegram.
DAFI, DeFi Envisioned Differently.
