The CEO of Binance says the future will be DeFi- The Cryptonomist

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Chang­peng Zhao, the CEO of Binance, said he thinks DeFi will dom­i­nate the dig­i­tal finance indus­try in a few years.

CZ talks about the potential of DeFi

Despite being the founder and CEO of the world’s largest cen­tral­ized exchange, Binance, Zhao is con­vinced that the future of the dig­i­tal asset sec­tor will cer­tain­ly be in decen­tral­ized finance, which has been boom­ing in the past two years.

About decen­tral­ized finance, Zhao had already talked about it two years ago when Binance Smart Chain was launched, a first ven­ture of the com­pa­ny into the DeFi space. At that time he had acknowl­edged that exchanges spe­cial­iz­ing in decen­tral­ized finance, such as Uniswap and Curve could in the future chal­lenge cen­tral­ized exchanges like his own.

In an inter­view, Zhao, using a short­hand term for cen­tral­ized finance, said:

“Our mis­sion is not to build a CeFi exchange. Right now it is one of our larg­er busi­ness­es that sup­port our growth. But over the long term, we want to push decentralization.”

At the time, Zhao also said that if decen­tral­iza­tion wins out as the dom­i­nant busi­ness mod­el for trad­ing venues in the dig­i­tal asset mar­kets, Binance could still prof­it from it, gain­ing from its hold­ings in BNB tokens.

How­ev­er, two years down the road, this doubt seems to have dis­ap­peared, hav­ing said that he is basi­cal­ly con­fi­dent that the future of the indus­try will turn toward decen­tral­ized finance. 

Accord­ing to Zhao, cen­tral­ized exchanges would now serve as a sort of nec­es­sary ramp to cryp­tocur­ren­cies for con­sumers unfa­mil­iar with the space, 

But then, as time goes by and as peo­ple become more famil­iar with blockchain tech­nol­o­gy, they will move to DeFi. Although this should and could take a few more years. 

The role of exchanges in the development of DeFi

Accord­ing to the CEO of Binance, peo­ple are still not very famil­iar with the world of cryp­tocur­ren­cies and dig­i­tal assets in gen­er­al, and so at least in the begin­ning, cen­tral­ized exchanges can help them get edu­cat­ed and have those tools that allow them to invest in a more informed way. Hav­ing reached this matu­ri­ty it may be inevitable for them to turn to decen­tral­ized finance.

In short, decen­tral­ized finance rep­re­sents an evo­lu­tion of dig­i­tal finance and a total adap­ta­tion to the decen­tral­iza­tion fea­ture of blockchain tech­nol­o­gy. Decen­tral­ized finance is a finan­cial sys­tem that does not rely on cen­tral finan­cial inter­me­di­aries such as bro­kers, exchanges or banks, but instead uses smart con­tracts on the blockchain.

By now, DeFi allows not only trad­ing, but also a whole range of ser­vices offered by tra­di­tion­al banks and finan­cial insti­tu­tions, such as earn­ing inter­est, ini­ti­at­ing loans, lend­ing, buy­ing insur­ance poli­cies, trad­ing deriv­a­tives, exchang­ing assets, and more, with the major dif­fer­ence being that all this hap­pens faster and does not require doc­u­men­ta­tion or the pres­ence of third parties.

Accord­ing to Zhao, with­in a decade or so, exchanges of this type will sur­pass cen­tral­ized exchanges, such as Binance and Coin­base, in terms of vol­ume and popularity:

“I think in five or 10 years, decen­tral­ized exchanges will be big­ger than cen­tral­ized exchanges… I would say max­i­mum, in 10 years, DEX­es [and] DeFi are going to be big­ger than CeFi.”

How­ev­er, Zhao also sees a future where the two sys­tems may well coex­ist togeth­er, because many peo­ple will still pre­fer more cen­tral­ized exchanges like his:

“I think because there are still many peo­ple who are much more com­fort­able using an email and pass­word. If you ask my par­ents’ gen­er­a­tion, they would much pre­fer [email and pass­word] instead of using a USB stick to do encrypt­ed back­ups of their pri­vate keys in a dis­trib­uted manner.”

DeFi provides greater inclusiveness

Final­ly, Zhao also high­light­ed the pos­i­tive role of tech­no­log­i­cal inno­va­tion relat­ed to the devel­op­ment of DeFi, which makes it much eas­i­er for users, and will make these tools increas­ing­ly attractive:

“I think the tech­nol­o­gy will improve to the point where decen­tral­ized tools will be much more usable. It’s actu­al­ly eas­i­er to use because you don’t have to do KYC (Know Your Cus­tomer). You don’t have to do all these very tedious process­es. You can be in con­trol of your wal­let yourself.” 

Zhao also spoke in a tweet about the impor­tant deci­sion made by Europe with the new MiCA reg­u­la­tion, approved in July and which is expect­ed to come into effect in 2023, not to inter­vene to lim­it the role of sta­ble­coins and on the PoW sys­tem, which reg­u­lates Bitcoin.

In the tweet, Zhao wrote how liq­uid­i­ty, which is pro­vid­ed to the mar­kets pre­cise­ly by sta­ble­coins, is key to pro­tect­ing users in the cryp­tocur­ren­cy world. The Binance founder called the Euro­pean Union’s new cryp­to reg­u­la­tion law cer­tain­ly help­ful, but per­haps a bit too restrictive.

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