It seems as if numerous predictions and moves by some of the world’s most famous billionaires and fintech enthusiasts have been true and worth discussing. From Elon Musk and his push on bitcoin to Dave Girouard on the automotive online shopping industry, their words may be worth listening to. Now, billionaire entrepreneur Mark Cuban has given his two cents on artificial intelligence and more specifically cryptocurrency, and what those interested should know. He recommends that people become educated in both crypto and DeFi, which is an abbreviation for decentralized finance. The goal of DeFi is to restructure existing financial institutions and instruments to best accommodate cryptocurrency holdings and transactions in massive quantities as quickly and safely as possible. Actually currently, DeFi lending allows customers to loan and borrow crypto the same way in which they do with other fiat currencies, and even earn interest as a lender. However, the process doesn’t look entirely the same as traditional lending, as customers are unable to provide physical assets as collateral if unable to pay their loan. Instead they must offer other crypto assets, which can serve as a hurdle if the customer isn’t looking to hold more crypto than which is involved in the loan amount.
DeFi apps are similar to those found on your typical smartphone, and have smart contracts embedded in them. According to Investopedia, “a smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.” It appears to be the best and most secure way to facilitate online contracts for the time being, so it’s reassuring that DeFi heavily uses this feature. Cuban has stated that he is mainly interested in the borrowing and lending feature of DeFi platforms, which is why he thinks people should become educated in it. He also commented on the action of “yield farming” which is similar to arbitrage in the foreign exchange market, where an individual constantly lends and borrows to take advantage of the best interest rates. Cuban said that this practice will have a negative impact on the DeFi world and should be more closely monitored in the future. The Financial Times also commented on this risk investors take, by stating “DeFi is highly experimental and exists in a regulatory grey zone and as with elsewhere in the cryptocurrency sphere, there are risks of scams.” Investors and users of these platforms should be wary and well-educated in the matter before partaking.