So the third problem of centralized finance is opacity. So let me talk in some detail about this. So traditional finance is transparent to only certain people in particular the regulator. So effectively, what we need to do is to trust that the regulator has got the information that it needs and that the company is actually providing accurate information and that the regulator is very diligent and checking all the time. So decentralized finance, everything is transparent. So the smart contract anybody can look at. So you know exactly what the balances are, of all of the contracts, the players, this is completely open. Okay, so this is a much different situation than centralized finance where we can't really see this. So when you've got a smart contract and that smart contract might actually hold a balance. So I gave an example of the DFT token and some USDC, anybody can check the ballots. So think of this as you know in terms of your counter parties exactly how much they have. Okay, so even in centralized finance, the bank doesn't really know how much capital their client might have. They can ask but they're not sure, within decentralized finance, it's immediate, So the collateral very, very clear. It's also possible to read the contract. It's there, his contracts are are usually fairly simple so you can determine if the terms are agreeable to you. Okay, so this is very transparent. So this also kind of eases the threat of kind of legal Obertan's because it is transparent, it's there, right? There's no fine print, it is an algorithm and every single line of the algorithm is the same font size. So I think that this is something that in traditional finance, especially the small clients, they get taken advantage of all the time legally by the fine print. And the contract will be very complicated potentially many, many pages and it just seems like too much for a small user to go through and essentially figure out all the details of that contract. This new space is much different. However, there's one thing to read a 25 page contract and centralised finance, but another to read a couple of pages of solidity code, so that's one of the languages that's used for smart contracts. So the average consumer probably doesn't understand that code, but again, this is one of the beauties of decentralized finance, it's open source. And there is a sense of the wisdom of the crowd that if there is a flaw in that smart contract, if there's a condition that's not very favorable to the users, then it will be forked, so somebody will take it and improve it. Okay, so I think that this idea of forking and the transparency reduces the risks of a complicated set of computer code. There is still risk, but it is mitigated. So another thing is that these contracts are designed in a way to ensure the behavior of the people that are interacting with the contracts, behave in an appropriate way. Okay, so it might be that somebody has to put a stake up or an escrow and if there's a problem then you lose some of your stake. So it's incentive compatible. So this is a built in mechanism to make sure that the contract is basically doing what it promises to do. So staking is a very important thing that we talk about in this course in considerable detail. It is the easiest way to basically punish inappropriate behavior because if you behave inappropriately, the stake is slashed. Okay, so, and this is again, all built in to the actual contract. It also works the other way where there's incentives to do things that are consistent with the contract. Okay, so it works actually both ways in terms of both incentives and penalties. So token contracts are really important, and again, there are 100s if not 1000s of tokens that are out there that are linked to the Ethereum Blockchain. And the token contract again is extremely transparent. So it tells you what the money supply rule is. So when we create a token and in my course I created it and the money supply is one billion tokens and that's it, we're done. I can't change it to 2 billion because once it's in the Ethereum Blockchain, it's there forever. So think of this, compare that to our centralized financial system or our central banks, who knows what they'll do to the money supply, we can't look it up, they have a meeting and decide what to do and who knows what that would be. So, these token contracts really clear what the money supply rule is, how many tokens are in the system right now, there might be a money supply rule in terms of inflation or deflation but it's all built into the contract and anybody can see it. So it's a much different money system than we're used to.
