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Decentralizing Finance

In decentralizing finance, money as a means of exchange can be viewed as

exchanging fragments of information of value. There is no doubt that cryptographic

breakthroughs that will revolutionize financial transactions are being developed as

we write and read about them. The technology and innovation advancements will

pave the way for a revolution in every transaction, beyond financial transactions

only. Among the important developments that need to take place, it needs to be

understood how the price discovery of varied cryptocurrencies translates to returns,

and its attendant volatilities, as well as the impact of volatilities from additional

assets (including other cryptocurrencies, tokenized assets, stocks, merchandises

and bonds, amongst others). Such in-depth understanding will be crucial to develop

hedging and diversification strategies for financial management in investment port­

folios or treasury operations.

13.10.1  Limitations of Research

As much of the research focused on the viability of a decentralized peer-to-peer

blockchain-based platform, the bigger picture of macroeconomic benefits was not

scrutinized. It would be beneficial to also understand how the alternative finance of

the DeFi movement in terms of volume per capita has an impact on a country’s GDP

performance. It would be interesting to have empirical data showing that the growth

of DeFi initiatives may make a significant contribution to financial inclusion and

efficiencies that positively impacts the GDP of a nation.

13.10.2  Recommendations for Future Research

While this research highlights the benefits of utilizing peer-to-peer blockchain-based

platforms for various use cases, it also does not ignore the reality of the barriers to

blockchain platforms. Future research could discover the emergent initiatives in this

area and conduct an in-depth examination into Uniswap, MakerDAO, Compound,

Aave, Yield protocol, dYdX, Synthetix and so on. One should always be cautious

when embracing the possibilities and opportunities with their associated risks.

Future research should indeed explore whether any major risk factors may develop

out of the DeFi space over the next few years, and how we can deal with them.

NOTES

1. DeFi is a terminology short for “decentralized finance” for a variety of financial appli­

cations in frontier technologies geared toward disrupting financial intermediaries.

2. Stablecoins are cryptocurrencies designed to minimize their price volatility by pegging

to some “stable” asset or basket of assets, such as fiat money and commodities (like pre­

cious metals or industrial metals).

REFERENCES

Food and Agriculture Organization of the UN (FAO). (2015). The Economic Lives of

Smallholder Farmers, from http://www​.fao​.org​/family​-farming​/detail​/en​/c​/385065/