All language subtitles for defi video 4-en

Now what I want to do is to
give a very brief overview

of some of the problems with
centralized finance or CeFi.

It's very brief
because we will go

through in much greater detail

later in the course these
problems one by one.

But I want to introduce
the problems.

What's the reason for this?

You've got a new technology.

The new technology to be
viable has to solve problems.

It's not particularly
useful to solve a problem

that doesn't exist or

a problem that might
exist in the future.

It's much more credible
to actually address

the problems that we
deal with right now.

Let me go through some
of these problems.

There are five that I focus on.

There are more, but these
are five that are important.

Centralized control,
limited access,

inefficiency, lack of
interoperability, and opacity.

Again, I just want to do an
overview and we will get

back to each of these
in much greater detail.

To centralize control,

our banking system is
highly concentrated.

It's interesting that it's
not as concentrated as,

let's say, in Europe or Canada,

but it is concentrated.

Our large banks have
significant influence.

Central national banks,

like the Federal Reserve
or the Bank of England,

also have control over
the fiat currencies.

There's concentration
in other areas too.

There's non-financial
centralization that

you could argue is
linked to finance.

Amazon and retail, Facebook,

Google, and digital advertising.

These are firms with
enormous market power.

These are firms that are,

at least we know for
one of them, Facebook,

very interested in
investigating cryptocurrency.

It makes sense for them.

Given the amount of business
that they actually do,

that it comes down
to a credit card to

save that three
percent is a big deal.

Limited access,

again I'll talk in more
detail about this.

But there are 1.7 billion
people that are unbanked.

There's probably more than
that are underbanked.

Our financial system,
even though it's been

operating in its current form

for a little over a 100 years,

a lot of people are left out.

As I'll go through
a little later,

this means that many
entrepreneurs are

forced to use a credit card

to get financing
for their business.

We know what those
credit card rates are.

Like 20 percent or more.

That can't be a good thing.

Number three is inefficiency
and we've talked

already about the
three percent swipe.

Look, don't fool yourself
by saying, well,

I don't pay the three percent,

it's the retailer that does.

Well, that's pretty naive

because that three percent makes

its way into the
price that you're

actually paying or part
of the three percent.

I talked about the inefficiency
of a wire transfer or

the two day settlement
when you buy a stock,

that just seems unacceptable
in the age of the Internet.

Transfer is slow, it's fraud.

Credit card companies
might say, "Well,

we have to charge
three percent because

we need to spend that
money on security.

We will guarantee if somebody

steals your card and uses it,

we'll pay you back.

You're not affected,
there'll be a chargeback."

Essentially you're paying
that three percent

because they've got
a flawed technology,

you're subsidizing a
flawed technology.

It's also no possibility
of microtransactions,

which I'll talk about also.

It's interesting in this space.

It's also difficult to get paid.

We take a paying on
the Internet with

a credit card its much more
difficult to receive funds.

There are some
Fintech technologies

that are allowing
people to do this,

but those technologies
largely use

the centralized
finance backbone.

Lack of interoperability.

Our institutions
are highly siloed.

To do something really simple,

like move some money from

my bank to my Robinhood account,

that's going to take
two or three days.

Let's say I want to buy

something like a
stock on Robinhood or

some other broker platform
and I want to do it quickly.

Well, it's really

difficult to do quickly
because I have to

transfer the money using

decentralized system and it's

going take two or three days.

Again, it is frustrating

in the age of the Internet that

it would take so
long to do this.

Some of these
companies recognize

that this is a problem and
there had been efforts,

for example, visa attempted
to acquire Plaid.

Plaid is a fintech platform that

links to make things
more interoperable.

But interestingly enough,

that transaction was
blocked by the regulators.

The last thing is opacity.

There's very little
transparency.

You go to the bank,

you see one bank advertising

a savings rate or a CD rate

that is much higher
than the other bank.

Well, maybe they're
doing that because

they're in distress,

that they're just risky,

and it's really hard
for customers to figure

out the risk of the actual bank.

Indeed, what we have to do
is to rely upon regulation.

Thousands of people that
are inspecting the banks.

So it's not out in the open

and that's what
DeFi actually does.

I'm going to argue
that these frictions,

these problems cause missed
growth opportunities.

This is very much
related to some

of my academic research.

The idea is really simple.

The entrepreneur goes
to the bank with

a great idea and

it might be 25 percent
return on investment.

Very exciting idea.
They need a loan,

but the bank's not
interested because

the bank would rather deal
with a very large customer,

rather than dealing with
many small customers.

The entrepreneur might
have a relationship with

the bank and the
bank says, well,

we will boost your
credit limit on

your credit card and you can

borrow the money on
the credit card.

That rate could be 24 percent.

When you think about it,

the return on investment,25,

the cost of capital,

24 percent. What happens?

The project is not pursued.

That is really damaging
for the economy.

All economies need
economic growth.

Indeed, many economies
are greatly indebted.

The amount of government
debt divided by, let's say,

GDP for many countries
is at an all-time high,

or at least an all-time
non wartime high.

That debt needs to be paid back.

There are three ways to do that.

One way is to raise

taxes and we know that
raising taxes is not

going to be particularly
stimulative for economic growth.

Another way is just to
print money and we know how

that turns out with inflation,

which is a tax on everybody,

but there's a third way.

The third way is increased
economic growth.

We've been stuck in

the US with a two
percent growth rate.

Europe is one percent.

Japan is less than
that, effectively zero.

But if you have
increased growth,

then it's much more likely
that you can pay back

your debt without
raising tax rates.

Just the economic growth,

the increased revenues
are generating

more tax inflow for the
government to pay down debt.

This is really important in that

the current economic system
is basically locking us in to

a low growth environment that

the project that the
entrepreneur has

got that delivers 25 percent.

That is the project that we can

boost GDP growth
to five percent,

six percent, seven percent.

But those projects just aren't

profitable given the financial
system that we've got.

The basic idea is that there

should be equality
of opportunity.

Right now, we've got
inequality of opportunity.

Certain powerful firms get
the best possible deals.

That just doesn't seem right
on multiple dimensions,

including the
economic dimension.

That project should be financed
based upon the quality

of the idea and the soundness
of the execution plan.

There are many other
issues that are

under this rubric of
inequality of opportunities.

Many in the world have no access

to the Internet to do commerce,

whether it's the buy or sell.

Many of the unbanked. This is

also a big loss for
economic growth.

Where we're going
is to establish

a technology that is inclusive,

that allows for equality
of opportunity.