DeFi, COMO, and a brave new world

26th February 2021


Before you wonder, COMO stands for Certainty Of Missing Out. I sold all my (very little) crypto few weeks ago, because I was finally recovering my initial investment and I got sick of checking Coinbase, and everything skyrocketed. Not the first wave I have witnessed, and learning a lot every time (especially with money you can afford to loose).

In the meantime, I got closer to something i believe MUCH bigger that the crypto gambling: decentralised finance (DeFi) which I will start by explaining (as usual) with a simple personal story.

I REALLY would like to differentiate my investments, and – as a so called fintech guy – I come across (amongst other things) a great number of opportunities to invest in these alternative lending platforms, be it for consumer or SME lending, which collect money from individual investors. Every country has one or more, and will name a few here to make my point. I would love to invest in, SME Italian lender, but I can’t because I am not a resident. For the same reason I can’t invest in, similar concept but more for emerging markets micro-entrepreneur.

Keeping my story going, let’s talk about Nigeria, one of the greatest places in Africa for potential growth and financial inclusion: there are at least 10 good platforms for micro-lending, all of them with good venture capital investments, some of them allowing private investors to finance their debt, with a great return. In this case it’s even more complicated: there are currency exchange issues, hedging issues, not to mention that the logistic of the operation for someone not local would be far from easy.

Imagine now a platform able to become a giant money translator, market and geography agnostic, allowing anyone and any company to lend/borrow from/to anyone and any company, using a crypto currency which, unlike bitcoin, is paired with a fiat currency, called a StableCoin.

The picture I put on the top is the chart of AAVE token growth. 90.000% in ONE year. Find below a more accurate and tech explanation i copy pasted from here 

DeFi lending is based on smart contracts that run on open blockchains, predominantly Ethereum. This is also why DeFi lending, in contrast to CeFi lending, is accessible to everyone without a need of providing your personal details or trusting someone else to hold your funds. 

Aave and Compound are two main lending protocols available in DeFi. Both of the protocols work by creating money markets for particular tokens such as ETH, stable coins like DAI and USDC or other tokens like LINK or wrapped BTC.

Now, this is a revolution, potentially, even if you didn’t understand the last 7 lines at all. Because it democratises finance, for good. The assets locked in DeFi protocols reached 13 Billions in 2020, with 2000% growth January-December (source: here). A still in the financial ocean, but might be more than just a trend. Most importantly, looks to me like the sublimation why FinTech was born in the first place: to make financial services more FAIR, cheaper, faster, and with the consumer (us, chickens, as we say) at the center of it.

It’s time to go back to studying mode. Stay tuned.