DeFi and the Race for a Global Digital Currency
Updated: Sep 15, 2021
Decentralized Finance (DeFi) is a skyrocketing trend right now and is poised to challenge the status quo of today’s financial system. DeFi is growing and has many ramifications, but there is one essential aspect that the emerging industry can transform — the international monetary system.
However, DeFi is not the only candidate to propose an alternative solution to the current world reserve currency system. Central bankers have also realized the great potential of blockchain and are currently working on their own versions of digital currencies (CBDCs). The problem is that they rely on permissioned blockchains, which leave no room for decentralization.
In order for DeFi to break the monopoly of central bankers, it has to be cooperative. That’s why cross-chain composability is the most important goal right now. pNetwork is working to make cross-chain bridges the norm and help all the different blockchains share a unified standard, which will make the industry more consolidated and stronger.
On a side note, with the Eidoo wallet, you can get exposure to pNetwork’s ecosystem and become part of the cross-chain composability trend. By holding PNT, you can participate in pNetwork’s governance process, as it hosts a Decentralized Autonomous Organization (DAO).
While Eidoo’s goal is to give you the best product to store crypto and generate profits by implementing yield farming and staking strategies, it also makes you part of a bigger picture. By putting your shoulder to the wheel of blockchain composability through Eidoo, you’re directly or indirectly contributing to the promise of decentralization.
The Battle Between DeFi and Central Bankers
The global monetary system has revolved around the US dollar since the Bretton-Woods system was established in 1944. However, the purchasing power of the American currency continues to decline, as the Federal Reserve (Fed) has unleashed its unlimited quantitative easing program to support the economy during the pandemic, injecting massive amounts of cash into the financial system. The Fed’s balance sheet — which gives economists an idea of the USD supply — had surged from about $4 trillion when the COVID started to make the headlines to more than $7.5 trillion today.
In fact, this is one of the main factors behind the crypto rally, as Bitcoin is regarded as a safe haven and a store of value (SOV), while DeFi is viewed as an alternative to the shaky financial system, which admits crisis after crisis.
Central bankers are now pushing the idea of CBDCs, but they don’t want to give control to the people. At the beginning of 2020, the European Central Bank (ECB), the Bank of England, Bank of Japan, Bank of Canada, and two other central banks created a think tank to test CBDCs and potentially issue sovereign digital currencies. The group is collaborating with the Bank for International Settlements (BIS), which previously said:
“In a digital economy, cash may effectively disappear, and payments may center around social and economic platforms rather than banks’ credit provision, weakening the traditional trans-mission channels of monetary policy. Governments may need to offer central bank digital currency (CBDC) in order to retain monetary independence.”
Elsewhere, the Fed is also working towards a digital dollar. Fed chief Jerome Powell admitted in February that “this is going to be an important year” for the digital USD. While the upcoming “Fedcoin” would compete with Bitcoin, it will be something else.
The problem is that all CBDCs and an eventual global currency would be strictly controlled by central bankers, which will not solve the fissures of the financial system. On the contrary, a global currency based on a permissioned blockchain would give even more control to technocrats.
DeFi must win this race in order to preserve people’s freedom and to minimize the abuse of power of the few. At least, it should remain as a valid alternative.
Are you ready to challenge the Goliaths of the financial system? Join the DeFi trend with Eidoo!