Should banks have a reason to fear DeFi? Billionaire investor Mark Cuban believes they should. In a blog post, Cuban noted that DeFi was recreating global finance using DAOs for governance.
The difference between DAOs and traditional organizations is that there is no single person or group of persons at the helm. Instead, governance is entirely decentralized, and decisions are made democratically. The majority of decisions are then put into code in the form of smart contracts.
This means that anyone can take part in banking functions such as lending. Several DeFi applications have come up, and most of them allow people to lend to each other, just like a bank would do. Some of the more popular ones are Compound, Aave, and Maker, all governed by DAOs.
The decentralized governance of DeFi is what Mark Cuban finds most attractive. It is what he believes gives DeFi an edge over traditional financial institutions. He is so interested in DeFi that he stated that he is invested in Aave.
In a question and answer session on Reddit, Cuban stated that Aave, like other DeFi projects, works more like a bank. The only difference is that, unlike traditional financial institutions, it is decentralized and has no headquarters or any of the other stuff that is associated with conventional banking, such as credit ratings. It is all purely smart contracts driven.
However, it is this completely decentralized nature that makes DeFi risky. That’s because, unlike traditional finance, there is no insurance. DeFi-related data shows that from January to April, hackers made away with over $156 million in DeFi.