Decentralised Finance

Promises and Pitfalls

De- and the future of nance

HARSHWARDHAN SINGH - 74022119202

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TABLE OF CONTENTS
About De-

Problems with Traditional Finance (Trad-Fi) & Solutions

Impact on Financial Institutions

Risks Associated

SDGs ful lled

Expert’s Opinion

Conclusion

Refrences

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 About De-Fi
De- o ers nancial instruments without relying on
intermediaries such as brokerages, nancial institutions,
exchanges and banks by using smart contracts on a blockchain.

Key terms :-

• Blockchain
• Smart Contracts

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 Problems With Trad-Fi
& Solutions
INEFFICIENCY LIMITED OPACITY CENTRALISED LACK OF
ACCESS CONTROL INTERPORTABILITY

Solution
Solution Solution Solution Solution

• Open and • De legos

• Reusable smart • Yield farming • DAO
contacts contractual nature
of smart contracts. • Tokenization of
• IDOs • Forking
(Atomicity of Interactions
• No
contracts)
Organisational
Overheads
• Staking
• Keepers • Token Contracts

• Forking

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Impact On The
INDIAN
Financial Institutions

COMMERCIAL BANKS INSURANCES

INVESTMENTS BANKS EXCHANGES

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Risks Associated
• Cryptocurrency being used for illegal activities
(eg: BTC being used on Silk Road for transactions)

• Environmental Risks
( Tradeo between security and environment)

• Fake Exchanges
( Strange distributions and trade volume- Only 4.5% is real)

• Scalability Issues
( This trade-o between security, decentralization, and scalability is
usually portrayed as a trilemma)

• Excess Transparency
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SDGs Ful illed

DECENT WORK AND ECONOMIC ENVIRONMENT

INDUSTRY, INNOVATION & INFRASTRUCTURE

REDUCING INEQUALITY

NO POVERTY

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Expert’s Opinion
“ Our legacy nancial infrastructure has both limited growth
opportunities and contributed to the inequality of
opportunities. Around the world, 1.7 billion are unbanked. Small
businesses, even those with a banking relationship, often must
rely on high-cost nancing, such as credit cards, because
traditional banking excludes them from loan nancing. High
costs also impact retailers who lose 3% on every credit card sales
transaction. These total costs for small businesses are enormous
by any metric. The result is less investment and decreased
economic growth. Decentralized nance, or DeFi, poses a
CAMPBELL HARVEY challenge to the current system and o ers a number of potential
Prof. Of Finance ,Fuqua solutions to the problems inherent in the traditional nancial
school Of Business infrastructure. While there are many ntech initiatives, we argue
that the ones that embrace the current banking infrastructure
are likely to be eeting. We argue those initiatives that use
decentralized methods - in particular blockchain technology -
have the best chance to de ne the future of nance.

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 Expert’s Opinion
“ It is a good technology, but I don’t think it will be a substitute for
normal currencies .Cryptocurrencies, were looking for an
application, and people were making claims on what and how they
can do things more e ciently. But right now, we still don’t have a
really e ective application. No doubt something will come down the
line. In the meantime, I think people are valuing cryptos as an asset,
bitcoin being the foremost of these. These things are not very
e ective in making payments yet, certainly not the bitcoin
variety.There are other currencies, with their ability to make micro
payments at a low cost,These payments could be costly in dollars,
but cheaper in cryptos. “Some of these may come about and may
revolutionise payments, but we are not there yet,” he said, and
added: “though I would not close the door on cryptos”
RAGHURAM RAJAN
Former RBI Governor,
Former Chief Econmist
at IMF ,
&…..

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Conclusion
DeFi is the nancial system of the Web3 world. It substitutes biased human
intermediaries with trust-building technologies like blockchain and open-source software.
It makes transactions cheaper and helps more than intermediaries pro t. It is almost
instantaneous, with T+2 settlements a thing of the past, and much more transparent.
Importantly, it is a democratizing force that empowers the end user to do things that only
powerful intermediaries could. It has the potential to spread banking to hundreds of
millions of the world’s unbanked. It is also brims with idealism over how to x what is
wrong with nancial markets and reduce its current power over corporations, countries
and people. Yes, DeFi has teething problems, but ultimately it could turn robust and safe
enough to replace banks and exchanges with democratic user-owned collectives.

“Centralized systems rest on

a very strong assumption:
trust in intermediaries and
institutions

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Refrences
• Article chosen - https://www.imf.org/en/Publications/fandd/
issues/2022/09/De -promise-and-pitfalls-Fabian-Schar

• Other - https://www.entrepreneur.com/en-in/news-and-trends/
how-de -is-changing- nancial-institutions/
387803#:~:text=DeFi%20may%20have%20an%20important,as%20
banks%2C%20insurances%20or%20clearinghouses.

• Books - De and the future of nance

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THANK YOU

HARSHWARDHAN SINGH - 74022119202

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