By now everyone realizes that the current banking system is imperfect. In addition to systemic and geopolitical risks, such as limited borders, time zone barriers and dependence on central banks, there are problems with bank transfers, international settlements and unstable credit availability. The fundamental problem is the mismatch between banks’ balance sheets and their leverage. When a bank faces liquidity or insolvency problems, depositors risk losing all their money unless the government intervenes.
This vulnerability has led to a growing interest in decentralized solutions from both retail investors and institutions. By eliminating human error and inefficient decision-making, decentralized finance (DeFi) offers an attractive alternative. Clearly, DeFi has the potential to revolutionize the way transactions, banking, lending and investing are conducted.
Three main factors can be identified through which DeFi is poised to create a future in which financial services are digital, open, always-on and borderless.
Among the key factors through which DeFi’s role is ready to create the future, digital, open, always-on and borderless financial services stand out.
Tokenization of real assets
Tokenization of real assets – real estate, fiat currencies or bonds – is becoming a key trend. Tokenized assets can act as collateral in next-generation DeFi lending markets. Bitcoin and Ethereum, for example, are considered primary collateral because their use can be automatically regulated by smart contracts without involving a third party to resolve disputes.
As this ecosystem evolves, individuals and institutions will increasingly use a wide range of tokenized assets to access credit services, unlock liquidity, and expand borrowing opportunities in global markets.
Continuous presence in credit markets
DeFi protocols create 24×7 trading platforms for lending, borrowing and asset exchange. These platforms operate continuously, allowing users to lend Bitcoin, Ethereum, and USDC, and receive income in return. We can expect to see tokenized assets added to these pools in the future.
Unlike traditional markets, where hidden leverage and risky banking practices of multiple lending can create systemic risks, DeFi’s transparent smart contracts guarantee clear collateral management, reducing counterparty risk. DeFi’s role in this process is becoming increasingly important as more Bitcoin holders use technologies such as wBTC (wrapped Bitcoin) to borrow stablecoins from markets without selling their Bitcoins, avoiding the risks associated with a rise in their price.
In this arrangement, loans are digitally collateralized, and if its value declines, the borrower either adds more assets or closes the loan, providing a healthier lending environment without the opaque risks inherent in traditional financing.
A do-it-yourself bank
Perhaps the most revolutionary aspect of DeFi is the ability for individuals to create their own banks. Throughout history, people have witnessed many banking crises. Historically, in times of instability, depositors have transferred their fortunes into physical cash outside of the banking system.
Today, DeFi offers a modern solution. Advanced Multi-Party Computing (MPC) wallets allow users to securely store and manage their assets, while online verification ensures they retain control. Individuals can now store value in stablecoins, invest in digital assets, and access decentralized lending services – all without relying on traditional banks.
With tools such as separately managed accounts (SMAs), users can store their assets in their own digital vaults without being exposed to bank balance sheet risks. This level of autonomy mirrors traditional financial strategies but extends them into the realm of cryptocurrencies, giving individuals unprecedented control over their financial future.
DeFi is the future
DeFi will become the backbone of financial services in the coming decades. The term “DeFi-based banks” may disappear as DeFi itself will become the standard financial services infrastructure. In this world, tokenized real assets will open up new opportunities for borrowing and lending, decentralized platforms will provide always-on banking services, and individuals will be able to run their own banks while retaining full ownership and control of their assets. This is the role of DeFi at this moment in time.
