DEFI: The future of finance?

Concurrently with the meteoric development of cryptoc urrencies, a crypto economy is emerging just as fast. As yet, it is mostly making the buzz in the crypto circles, but the fact remains that the technologies ushered in by blockchain, c rypto- assets and smart contracts have the potential to disrupt many industries in coming years. Decentralis ed Finance ( DeFi ) is the sector where the most important innovations are taking place. Although still small compared with traditional finance, DeFi’s market cap has increased significantly since 2020 and it is expected to continue to grow in coming years as it becomes more mainstream. An alternative ecosystem to the traditional financial sector is emergin g with new types of governance and investments, accessible to all, decentralised, without intermediaries, transparent and instantaneous. DeFi is still in its infancy and will evolve significantly in coming years. It presents many opportunities. Currently, the main DeFi projects are grouped into a few categories such as lending/borrowing , asset swaps , derivatives, stablecoins, insurance products, payments, prediction markets and tokenisation. This publication is an introduction to the DeFi universe that has yet to be built. We review the functioning of the DeFi ecosystem based on a decentralized environment, public and open to all. We then go into detail about the main projects that are at the most advanced phase . We also underline in this publication the numerous hurdles slowing a wider deployment of DeFi, such as the problems linked to the security of the protocols and above all the lack of regulation intended to protect individuals. In response to the DeFI craze, regulators have begun to react and will curb any future activity that threatens the health and stability of the financial sector. However, the current plans of regulators such as MiCA could hamper innovation and the competitiveness of European projects if the measures are too restrictive. Many protocols will still have to comply with regulatory requirements in the future, which will reduce the decentralization of platforms. Finally, the user experience, one of the main barriers to adoption by the general public, also remains an obstacle, but this could quickly change as many projects are moving forward very quickly.