Since June this year, DeFi (decentralized finance, such as decentralized lending, decentralized exchange, decentralized stablecoin, etc.) has been extremely hot, which is easily reminiscent of the popularity of P2P Internet finance (generally referred to as P2P online lending, hereinafter referred to as P2P). So will DeFi be a flash in the pan like P2P? What are the differences? L
I. Sources of public trust
Although it is based on the Internet to carry out related business, but the essence of P2P is traditional finance. The credibility and vitality of traditional finance depend on the strength, authority and stability of relevant institutions. From the emergence, development and gradual silence of P2P finance, we can also see that the strength, authority, stability and operation level of P2P platform directly determines the life and death of P2P platform.
By contrast, DeFi’s viability as a decentralized finance depends on the strength of its protocols, cryptography, and smart contracts. Lending and other related services precipitated and solidified into blockchain-based infrastructure, which was maintained and improved by the open community through cryptography and smart contracts.
Ii. User credit
Current DeFi has low requirements for user identity and credit, and relies on asset collateral and smart contracts to secure transactions. But in the future, if DeFi’smart contract is more perfect, is it possible that the mortgage rate of users with high credit and guaranteed assets can be lower? It’s possible. This also requires that the user’s data about credit, assets, and so on be written into an smart contract, and in DeFi this data is likely to be real-time, dynamic, and objective.
However, when people apply for loans through P2p lending, they generally follow the traditional financial model. Applicants apply to the platform, then review the applicants and finally decide whether to grant loans and the specific amount, which is usually a relatively complicated process.Even after thorough due diligence, the final credit rating can still be vague and static;Moreover, the credit rating agencies can be subjectively evil, as they are well known for their infamous role in the Us subprime crisis of 2008, not to mention other financial ratings.Therefore, due to the characteristics of the credit audit method itself, the credit data of traditional finance including P2P is relatively static, lagged and subjective.
Iii. Operation process
As a fund intermediary, finance should do its job well and should not have subjective preferences or mistakes or even abuse of rights.Yet traditional finance is a far cry from our ideals.
Perhaps the biggest difference between DeFi and P2P is that DeFi is able to do the whole operation with as little human interference as possible, through smart contracts.
1. DeFi operates more fairly.DeFi can serve anyone anywhere in the world and be served fairly as long as it meets the conditions for participation;It is similar to a highly liquid global value trading market, as long as there is a valuable token or other transaction certificates and trading demand, can be traded;The algorithm can adjust the interest rate automatically according to the supply and demand situation without subjective intervention.If it has any defects, they are obvious and require immediate repair.
2. DeFi funds and handling are more secure.With DeFi, money can be safely stored in a globally distributed ledger that anyone with a network connection can view;With DeFi, you can publish your assets to a smart contract, which is designated as collateral for any money you wish to borrow, and of course you cannot repay the loan, the agreement automatically assigns your collateral to the lender.
In short, P2P lending can combine big data artificial intelligence and other information technologies in business operation, but it is traditional finance in essence and the whole process is still under centralized operation and maintenance. Therefore, the supervision of P2P lending is still based on traditional supervision.DeFi, on the other hand, belongs to the new generation of finance in terms of its business model, which is subversive to traditional finance. It is likely to become the historical and logical starting point of the new generation of finance or digital finance, and it needs appropriate systematic risk prevention and legal system of user rights protection.
