Define finance intermediaries full#

The DeFi solutions Maker, Compound and Aave locked about $18.5bn in March 2021, but these values are liable to change frequently because DeFi is defined by extreme volatility. The value of this new DeFi ecosystem, expressed in US dollars as the countervalue of the cryptocurrencies underlying the DeFi applications, reached a record high of $45.56bn on 22 February 2021, a 49× increase over the previous 12 months ( DeFi Pulse, 2021). Latterly, programmes not controlled by a single entity but instead running on blockchain technology, Ethereum in particular, have started to surface under the name of Decentralized Applications ( Frankenfield, 2018 Li et al., 2021a), and applications of this sort for financial services are known as DeFi Apps (decentralized finance applications). Ethereum, a “community-run technology powering the cryptocurrency, Ether and thousands of decentralized applications” ( Ethereum, 2021), emerged as the main base platform to build blockchain-related financial services. Several proposals have appeared over the years. Bitcoin is by far the most largely capitalized cryptocurrency, with more than $939bn in market capitalization as per February 2021 ( CoinMarketCap, 2021). Morgan, which created a digital coin for interbank payments ( Li et al., 2021a) and PayPal, which allows users to pay in cryptocurrency on its platform. Non-exhaustive examples include Facebook, which founded a global joint-venture with several partners to create a private currency denominated Libra and then renamed Diem, J.P. Since the release of the Bitcoin white paper in 2008 ( Nakamoto, 2008) and the surge in popularity of its underlying blockchain technology, numerous startups, tech giants and major banks have started to explore the potential of these innovations, as it is particularly suited to the financial sector because of its emphasis on security and trust ( Lee, 2019) and its ability to provide customized services ( Thakor, 2020). DeFi has, however, inherited risks from the underlying technologies that unintentionally facilitate illegal behaviour and can hamper the authorities’ supervision. Our findings back the position that decentralized finance (DeFi) does not eliminate financial intermediation, but enables it to be carried out in new ways, where decentralization means that no single entity can hold too much power or monopoly. This development could result in there being only a marginal or even no role at all for central authorities or traditional intermediaries, or even to intermediation in its entirety altogether, in spite of well-established theories of financial intermediation, suggesting that intermediaries play a fundamental role in lowering transaction costs ( Roth, 2015 Shiller, 2013) and in reducing information asymmetry-related issues ( Biglaiser, 1993).

Define finance intermediaries full#

The full terms of this licence may be seen at īitcoin, cryptocurrencies, blockchains and the development of various apps can, independently or in combination, enable the emergence of a new financial system ( Chen and Bellavitis, 2020), where peers will increasingly be able to carry out financial interactions and transactions in a free and direct manner ( Chen et al., 2019 Cong and He, 2019).

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