The economic relevance of decentralized finance for future financial systems

With the advent of Blockchain, it is possible for peers to provide financial services to each other. This includes familiar applications such as payments with and investments in cryptos, but also the lending and borrowing of cryptos and other assets from one another. Decentralized Finance (DeFi) has taken off in the past few years as a number of service-providing Blockchain platforms have matured. DeFi in short, is an umbrella term encompassing the vision of a financial system that functions without any intermediaries, such as banks, insurances or clearinghouses, and is operated just by the power of smart contracts. DeFi applications strive to fulfill the services of traditional finance (also coined as Centralized Finance, or just CeFi but in a completely permissionless, global and transparent manner and is likely to have a significant impact on how banks operate in the future and even has the potential to shift the structure of the whole financial system at a macroeconomic level. The expectation is that the financial and economic applications surrounding DeFi will cause a major disruption in the same way that cryptocurrencies caused this and are now generally accepted in society. DeFi is one of the four lines of research of the Saxion Research Group Blockchain. The following text represents the point of departure for further research.