Why Millennials will abandon traditional finance and flock to DeFi.
If you have been paying attention to financial news at all in the past month, you may be confused as to why and how a bunch of basement dwelling trolls on Reddit were able to almost completely bankrupt some Wall Street hedge funds. Basically, some smart reddit users were able to find out short positions of several hedge funds that were way over leveraged, and rallied others on the wall street bets forum to join them in going long on GameStop Inc. There were many reasons as to why retail investors jumped into the hype. One of them was to screw over some hedge funds in some sort of anarchist libertarian rage. Some wanted to make a quick buck. Others joined in for the memes.
Robinhood, a popular mobile exchange app, was supposed to be a game changer for regular investors as it removed barriers to entry when it came to investing and did not charge fees. In a poetically ironic move, Robinhood decided to actually betray its stated purpose and abruptly stopped the buying of GameStop stocks, but not the selling, artificially causing the price to drop, and save wall street firms from being short squeezed due to retail investors. Whether or not Robinhood had legitimate reasons to stop trading of GameStop stocks due to liquidity concerns, the narrative was set. Robinhood, along with other Wall Street Hedge funds, seemed to have colluded to save the short positions of several wall street players, and screw over regular investors.
The trend is clear, and has been growing since the 2008 Financial Crisis. Millennials will flock to other financial opportunities.
Why? Millennials do not have any stake in the game in the current legacy banking/finance system. If you are a older millennial, you grew up in a economy that was destroyed by wall street speculation, that for the first time in decades where the younger generation had less opportunities than their parents, that was convinced by society that in order to prosper, the best way forward was to take on enormous amounts of student debt and try to find work in a job market that is flooded with applicants. If you are a younger millennial, you have taken on more debt to pay for education, and are entering the workforce during the worst recession since the Great Depression. Why would you continue to have faith in a financial system that has failed you your entire adult life?
Enter Decentralized Finance
Decentralized Finance, or DeFi, for short, is revolutionary. It has the potential to completely upend the hundreds year old financial and banking system, and millennials will be it’s biggest participants.
DeFi are decentralized financial applications that run on the blockchain.
This includes anything from lending/borrowing, insurance, investing, speculating, gaining interest in savings like accounts, etc.
The key feature is that it removes parasitic 3rd parties that are in traditional finance from the picture. You do not need millions of dollars to access financial instruments, you do not have to go through mountains of paperwork at a bank or exchange. Instead of KYC (Know your customer) procedures, and potentially giving up personal information to a centralized server that is vulnerable to hacking, you have to use your own collateral to participate. It is much easier to access and participate in. You can set up a cryptocurrency wallet and use Defi apps in a couple minutes.
Are there inherent risks in DeFi? Of course. This is an emerging market. There will be growing pains, like in any new tech. However, for Millennials, and even Gen Z, there is very little reason to not participate in the DeFi ecosystem.
For our parents' generation, investing in traditional investment vehicles made sense. Houses were affordable and could be used as investments, Bank saving interest rates were at reasonable rates, Bonds gave decent yield.
DeFi gives a unique financial opportunity to the generation who did not have one previously. Millennials do not own houses, bonds, have very little savings in the bank, because they saw no reason to nor had the opportunity. They have no skin in the previous system, and very little to lose.
Government stimulus, which mostly went to large corporations, is poised to completely devalue the USD, EUR and YEN, making holding government currencies a risky endeavor.
Is cryptocurrency, and DeFi, just hype?
Ethereum, which is currently the most popular protocol for building DeFi applications, is having record numbers of daily transactions due to the rise of popular Decentralized exchanges like Uniswap.
Ethereum Unique Addresses are also on the massive rise.
DeFi adoption is growing rapidly. The amount of collateral, and therefore investor confidence, is rising.
Yet the total market cap crypto dominance of DeFi is still in it’s infancy at around 5%
Decentralized Exchange volume versus Centralized exchange volume is only 1.6%
Clearly, DeFi is still in its infancy stage, and that is within the cryptocurrency ecosystem, which itself is also in its infancy stage. But the trend is clear. Cryptocurrency, and Decentralized Finance is here to stay. The fiascos of this past month, coupled with the narrative that legacy finance systems have failed us, are starting to prove the need for more decentralization in the currency, assets and financial instruments that we use.
(Images from coingecko.com and defipulse.com)
