Billionaire investor, and owner of Dallas Mavericks, Mark Cuban spoke bullishly on the future of Decentralized finance (Defi), and Decentralized Autonomous Organizations (DAOs). He wrote a blog post on Sunday explaining why most financial institutions should be concerned with Defi-based cryptocurrency.
The aim of a decentralized finance application is to recreate the traditional financial systems with digital assets, while decentralized autonomous organizations are the entities that govern and oversee Defi applications among other projects.
DAOs are quite similar to traditional corporations and organizations, but they differ in terms of leading. DAOs are democratized, rather than having a centralized leader, DAOs consist of members that vote on making a decision or establishing policies, which are integrated into smart contracts on a blockchain.
The mechanism of decentralized protocols is the main reason that piqued Cuban’s interest in them. It’s the nature of the system that made him believe Defi could pose as serious competition for traditional banks.
Cuban used Aave, a Defi lending application, to explain why the system poses a threat to traditional banks. Aave is a completely automated platform without bankers, vaults, and forms to hold a user’s money, and doesn’t use credit ratings either. With Defi applications, everything is controlled by smart contracts and is fully automated. Therefore there’s no need to get approval from anyone to take out a loan.
Despite the bullishness, there major risks involved with Defi such as the lack of a regulation system and insurance on money unlike with traditional bankings. Taking loans with a Defi system means borrowers are not held accountable or they will not be able to pay back a loan.
Yet despite the risks, Cuban is still bullish about the future of Defi and its potential to compete with traditional banks.