Billionaire investor Mark Cuban is optimistic about the growth of DeFi, or decentralized financial applications, and believes these will pose a challenge for traditional banks.
For him, the “fundamental benefit of DeFi is that it makes it easier to borrow for personal use,” Cubans tweeted Thursday in response to a debate on DeFi.
“It is troublesome to borrow money from a bank,” he said. “And [DeFi] enables anyone with money to be a lender. “
DeFi applications aim to emulate traditional financial systems like banks and stock exchanges with cryptocurrency. Most run on the Ethereum blockchain.
As Cuban mentioned, DeFi loans allow users to lend cryptocurrencies like a traditional bank does with fiat currency and earn interest as a lender. The barrier to entry for credit is low compared to a traditional system. In most cases, the only requirement for taking out a DeFi loan is the ability to provide collateral with other crypto assets.
“[B]Companies, whether decentralized or otherwise, usually benefit from offering customers the path of least resistance to get what they want and / or need, ”Cuban said. “DeFi is not monolithic. It’s competitive. It will evolve to meet customer needs. “
Cuban admits that DeFi won’t “automatically end” banking because “banks aren’t stupid,” but he predicts that DeFi applications will still disrupt traditional space. “To like [how] Fintech has chosen features that have opened doors to apps that have drawn millions of customers. I think DeFi will develop in the same way, ”he said.
“Some industries are hostile to change. It is the innovator’s dilemma. Banks could have simplified / automated to the point that DeFi was not needed. They didn’t. You’re so stuck in the legacy [operations] they are disrupted by simple fintech, ”Cuban continued.
However, DeFi is much riskier than a traditional bank for several reasons.
For one thing, there is no regulation or insurance for your money when you use DeFi, and the volatility of cryptocurrency means investors have to deal with large fluctuations in price. During a downturn, the crypto assets used as collateral can depreciate significantly and some investors may see their positions liquidated. Because of this, experts warn that investors should only spend what they can afford to lose.
Even Cubans admits that “DeFi is a platform that can be betrayed”.
Looking ahead, Cubans predicts that the big players in DeFi will be “welcome” to regulation as it “will grow the industry and still have a wild west aspect,” he said.
Cuban has long been a supporter of DeFi and the crypto space as a whole. He has an extensive crypto portfolio with investments in Bitcoin, Ether, Dogecoin and other Altcoins, along with NFTs or non-fungible tokens and many blockchain companies.
Join Now: Get smarter about your money and career with our weekly newsletter
Do not miss: Mark Cuban says crypto regulation based on existing fraud laws isn’t necessarily a bad thing