Decentralized finance: Implications of the so-called disintermediation of financial services

• Main Author: REMOLINA LEON, Nydia
• Format: text
• Language: Spanish
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Financial services; blockchain; crypto-assets; financial regulation; Banking and Finance Law; Finance and Financial Management; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/sol_research/4298; https://ink.library.smu.edu.sg/context/sol_research/article/6256/viewcontent/Nydia_La_reinvencion_financiera_en_la_era_digital_2022_pvoa.pdf
• Institution: Singapore Management University

Decentralized Finance, known as DeFi, refers to the use of blockchain and digital assets or crypto-assets for the provision of financial services. Under this concept, services such as loans, insurance, crypto-asset exchanges, among others, are offered, are structured based on crypto-assets and through technologically decentralized applications. This chapter discusses the concept of DeFi and how it challenges the traditional market infrastructures of the financial sector, demystifying the idea of absolute decentralization, generally mentioned in the crypto-asset arena, from the perspective of decision-makers and governors of these decentralized applications. Subsequently, the chapter analyses the opportunities and challenges of DeFi for consumers, financial institutions, new competitors and financial regulators. Among the opportunities, the chapter explains how DeFi could contribute to financial inclusion, to the automation of certain financial products and how it is a key factor for the development of metaverses. As part of the challenges, the paper analyses the problems of money laundering and terrorist financing in these markets, financial consumer protection, corporate governance issues, the lack of transparency of these products, cybersecurity risks and systemic risk issues. Finally, the chapter addresses some early regulatory responses that policymakers have tried in response to some of these challenges in different jurisdictions.