Decentralized finance negatively affects the volume of finance managed by central banks

Al - Anbat - Saba - Al - Sukkar 

Translated by - Neveen - Al - Jarrah 

Many financial agencies are developing decentralized finance (DeFi) applications in order to take advanced steps in the world of cryptocurrencies and assets in order to achieve high financial gains.

Decentralized finance is an integrated system of applications based on the blockchain network such as ether and other networks that operate automatically through special protocols and do not need an intermediary or a third party.

In an exclusive interview with "Al-Anbat", Dr. Wael Al-Bayada, a researcher in communications at the University of Oxford, UK, expected the growth of decentralized finance dramatically; The ease of conducting commercial transactions between users and its ease of use, indicating that this does not apply to a specific country, but rather to the world, which will negatively affect the volume of central finance that is managed through central banks in various countries of the world.

He explained that decentralized finance carries a lot of risks. Due to the absence of central scrutiny and oversight, he called for the enactment of international laws to regulate the use of blockchain networks, cryptocurrencies and decentralized finance platforms, which has become an urgent necessity in light of the increasing use of decentralized finance, which is expected to reach trillions of dollars in the near future.

Al-Bayada pointed to the use of decentralized financing platforms to conduct lending and borrowing operations in exchange for a certain interest with the use of some guarantees that differ from one application to another. To increase the risks, especially in spot trading, or in betting in order to win more money in return for risking the owned assets or part of them.

He continued, that any company or entrepreneur can create an application or platform for decentralized finance, by having the experience and technological knowledge, on any of the available blockchain networks, and many applications and websites currently allow the use of decentralized finance, and do not require providing any personal information about users, who They must use cryptocurrencies to carry out their transactions.

He pointed out that the Ethereum blockchain network is the first to use decentralized finance, and the matter has expanded to include other networks that use smart contracts, noting that decentralized finance is characterized by; It is open, that is, it can be used by creating an electronic wallet with ease compared to the process of opening a traditional account in banks, and it is also possible to transfer funds between wallets simply, through the blockchain network and without the intervention of banks and also easier with some costs that differ from the blockchain network to Others, and the applications of decentralized finance can work with each other easily.

For her part, the assistant professor of financial technology at the University of Applied Sciences, Dr. Maha Shehadeh, indicated to "Al-Anbat" that the decentralized finance system is a modern, open-source, environmental system that does not need permits and operates transparently so that the customer can view the information without modifying it, and it is positive for the inability to Its fraud, indicating that what distinguishes the system is its work without a central authority that controls it (ie, traditional and commercial banks, or central banks), and without the need for an intermediary, and it is available to everyone.

She stated that the client can access his account without regard to time and place, unlike central financing, explaining that it is low-cost because there is no intermediary, noting that the transparency feature in the blockchain technology, may be one of the negatives of the decentralized financing system in the inability to change the information once it is saved, and In the event the customer forgets the password, his money will be lost, and in the event the customer dies, the heirs cannot recover his heirs.

Shehadeh indicated the importance of keeping pace with decentralized financing in the issue of financial inclusion, which the Central Bank is working to promote among individuals who do not yet deal with the banking system, explaining that the financing system encourages individuals to use it as it does not require bonds and documents and its cost is low.

It is worth noting that the International Monetary Fund focused on decentralized finance, which would support the establishment of a new financial infrastructure if challenges could be overcome, noting that digital innovations led to massive developments in the financial system, but its infrastructure remained central as it was.

The fund added that decentralized financing is an alternative to centralized financing. It uses public networks based on blockchain technology to conduct transactions without having to rely on central service providers, such as custodians, central clearinghouses, or escrow agents, and instead, these roles are performed through so-called smart contracts.