In the third module, we're going to talk about in some detail, the problems that centralized finance actually solves. I've already given you an overview of these problems. But I want to go into more detail. Because in understanding the problems, you see the potential of this space. I'll talk about inefficiency, limited access, opacity, centralized control, and lack of interoperability. Let's take a look. We begin by inefficiency. Think about DeFi in terms of what it can accomplish. DeFi accomplish basically, very high volumes of transactions with very low frictions, which would be an organizational burden. As I've said previously, that to transfer the equivalent of a $100 or a $100 million, that is basically the same thing in terms of ease of actual execution of that transaction. But it goes deeper than that. That the Spark contracts that are designed can be reused. It's not like you're building something and then you have to rebuild it, or have to specialize it for every single application. These can be reused in the form of these decentralized applications. It gives a lot of leeway in terms of what you do. The size of the transaction is pretty well irrelevant. I will qualify this a little bit. I end that given that the gas fees are so high right now, that does provide a barrier to some smaller transactions. But my opinion, that is a problem that will be solved in the future. There's no organizational overhead. There is no brick and mortar. There's no layers of middle people. A user can operate within the parameters of the smart contract, and the contract on whatever a block chain it resides. I'm mainly talking about a theorem. But there are other blockchains, not the Bitcoin blockchain, that also can host decentralized applications. Basically, this is open to anybody. There's no interview that's necessary, there is no checks. This is can be used by anyone. This is a technology of inclusion. It's a technology of financial democracy. Once that contract is deployed, it lives forever. On the Ethereum blockchain, for example. It's there, there's no organizational overhead. This is another attribute of efficiency. Keepers are something that we should understand. Keepers are external participants that are incentivized to maintain a service for decentralized finance protocols. For example, they might monitor the collateral that you posted for a transaction. If the collateral dips in value below a certain point, then they will liquidate your position. They're providing a service and they get paid for it. This isn't automatic. These are our actual agents that are essentially providing the service to a decentralized finance application to keep it running the way it should be running, and to reduce the risk, and they get rewarded for that. The actual payment that these keepers get is market-based. Think about it as an auction that happens. They are an integral part of this network. This is a general point that within DeFi, it's structured in a way that the users are essentially paying market prices for the services they need. This is a lot different than centralized finance, where you're not paying market prices for the services. I did a wire transfer dollars to euros the other week and I was quoted a rate and I was told I'm such a good customer of the bank that they would waive the fee. Well, the rate I was quoted was not a market rate, indeed it was three percent off the market rate. Again, this is just an example in centralized finance of a bank making a fee on a fairly straight forward transfer of dollars to euros. This doesn't exist in the same way in terms of decentralized finance. There is another aspect that's fascinating, and it's the idea of forking. Let's say that there's a smart contract out there and you've got an idea to improve it. Well, what you can do is copy the code that's public access. All the smart contracts, the code is publicly available and you can make that improvement or upgrade, and launch it. Potentially take business away from the old smart contract that you effectively or copied and improved upon. Think about that it's a deep idea that instead of reinventing the wheel, having to do all of the steps of designing the contract and then improving it, you can actually start with the existing contract, you can make the changes and you've got something better. It is so easy to fork. This basically makes everything much more efficient. Think about a small change that is important, but maybe not as important to invest all the time of building something from the bottom-up. Well, you don't need to build from the bottom-up, you can actually take what is there, improve upon it, and redeploy another smart contract. This is a very powerful idea within decentralized finance. It's also the true that this is a general thing for not just the average smart contract, but decentralized apps also. Again, if you've got an idea for improvement, it's easy to create a new dApp. All of these dApps are forkable. Again, this really helps with the efficiency of the technology. There's a term in my work cloud called vampirism. Because of the open nature of decentralized finance, anybody can just go copy the current technology. Technology might be working fine, but you copy it and perhaps you provide an incentive mechanism for people to switch from the contract that you basically grabbed to your protocol. It's really intense competition because then if there's enough people using the new platform, then the old platform might need to change its incentives. In the end, the users get the best deal. There's also risks that are associated with vampirism. It could be that, and we'll talk about this in much more detail in the fourth course, that some of these rewards are flawed. It could create a situation where people lose a lot of money. It's also possible that the code is effectively hijacked and modified in a way that leads to additional risks. We'll talk about specific examples of that where a smart contract was taken and modified in a way that led to a vulnerability. This happens, so you need to be aware if somebody is doing this. These protocols are not without risk, and that's an important part of this course.
