The Battle Of The Bill: Why DeFi Will Clean Up The Finance Industry Regardless

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

The Senate may have blocked amendments to the Crypto Provision in its Infrastructure Bill, but DeFi’s value proposition has never been clearer

Last week saw the strength of the crypto community tested as it took center stage in the U.S. senate. Cryptocurrencies were included in a 2,700-page bill as a pay-for provision, with broad and unspecified wording muddying the definition of a crypto "broker" and raising concerns that the bill would require entities, such as miners and software developers, to report tax data to the IRS. This forced reporting could strangle blockchain innovation within the U.S. and force existing cryptocurrency businesses to shut down or relocate offshore.

The crypto community showed strength in numbers, with popular social media platforms such as Twitter TWTR enabling the word to be spread fast amongst developers, miners, exchange providers, and more. Twitter CEO Jack Dorsey and other well-known figures such as Kraken CEO Jesse Powell publicly stood up against the "unworkable" proposal. In the Senate, three Republicans -- Pat Toomey, Cynthia Lummis, and Rob Portman -- and two Democrats, Mark Warner and Kyrsten Sinema, proposed the bill after days of negotiations.

Ultimately the Senate blocked the change to reporting rules for cryptocurrency in the infrastructure bill. Lummis said Congress would have to revisit the issue; the decision has not been taken lightly by the cryptocurrency community but, as innovation continues to blossom, all is far from lost. Cowen's Jaret Seiberg said that the bill was "one of the clearest indications that Washington is prepared to accept crypto as a permanent part of the financial ecosystem." The overall acceptance of blockchain technology within outdated traditional financial systems gives hope that decentralization is still on the horizon.

And decentralization is more needed than ever. Today's banks and financial institutions still act as centralized exchanges that enable buyers and sellers to transact with each other. Access to this means immediate liquidity provided by the institutions. However, this centralized structure also means that institutions have the power to exclude anyone from receiving credit based on an assessment of their profile. Bureaucracy and automation can prevent people from participating in these markets, and the black boxes that contain these profile assessments provide very little transparency to the outside world.

DeFi Will Peel Back The Iron Curtain Of Traditional Finance

DeFi can provide transparent liquidity and remove gatekeeping powers from the antiquated and opaque systems that run today's financial industry. With DeFi's development ecosystem exploding in recent months, innovative protocols offering crypto lending, borrowing, swapping, and pooling utilize an array of smart contracts and protocols to make financial tools and services available to everyone.

DeFi's peer-to-peer nature brings transparency, immutability, and programmability to finance. The introduction of trustless oracles and auditable automation means that accurate and non-corruptible data can carry out automated actions with no middlemen.

The 2008 financial crisis was made much worse due to the rampant interest rate rigging. The issuance of false credits contributed to catastrophic failures of the financial system, for which forty-seven bankers were sentenced to jail time for the role they played. The advent of blockchain technology, particularly DeFi protocols, can tackle the issues posed by centralized financial structures head-on.

A Future Of Trustless And Decentralized Finance Is Inevitable

DeFi has exploded into the world, offering an alternative to the only financial system most of us have ever known, and this has given birth to a wave of exciting technological developments in recent months. DeFi-native teams, such as those behind Ratio Finance, are not letting hiccups such as the infrastructure bill stop them on their mission to truly democratize access to financial products and services during a turbulent time for the global economy.
Ratio is building an algorithmic system for issuing collateralized debt positions on top of the rapidly expanding Solana blockchain, without middleman or custodian involvement. Giving users a wide range of options to choose from when it comes to what they do with their liquidity provisioning efforts, Ratio also minimizes downside risk for liquidity providers in the Solana ecosystem.

"The heart of decentralized finance is increasing consumer trust and safety by creating open-source, publicly auditable infrastructure for settling financial transactions without the need of central parties," says Shimon Newman, Core Contributor at Ratio Finance. "We are focused on increasing consumer safety by analyzing the underlying risk of collateral used in our system, and we are proud to be part of a growing movement that recognizes blockchain's potential for protecting consumers instead of taking advantage of them."

The Defi landscape is, of course, still in nascent stages and therefore not without risk. As the industry continues to grow, so does the importance of offering secure solutions and recourse to users of DeFi protocols who are used to the comprehensive insurance packages provided by outfits in the traditional finance sector. Thankfully, a myriad of structured and automated insurance mechanisms are emerging in the DeFi world that enables platform participants to enter into protocols with more peace of mind; as these products and the industry as a whole evolves, so too will the levels of safety and trust within DeFi.

Image by Denis Hiza from Pixabay

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.