Book review – Defi and the future of finance – Must read!!!

I chanced upon this book at the local library, and it seems to be an easy read. It’s quite slim, with fewer than 200 pages, and from a quick browse, it does not seem very technical, with mainly words and few graphs or complex mathematical formula (if you have some ideas about blockchain and crypto, you will know that it’s a very mathematically heavy area, with lots of technical work the deeper you dig down into the core technology). All in all, probably an easy read.

Damn, how wrong was I? It’s a classic example of “Don’t judge a book by its cover!” I ended up spending almost one week, and the more I read, the more I appreciated the effort of the authors to make the complex topics presented in the book more palatable and comprehensible to the public audience. No wonder why that book was prefaced by Vitalik Buterin, the so-called father of Ethereum himself. It can easily be used as a college level recommended text for a course about Defi, blockchain and cryptocurrency. And now that I have returned the book to the library after devouring it, I really feel like purchasing a copy for myself.

The book started with a brief history of finance, before launching into the topic of crypto, blockchain and Defi, and their use cases and the problems they set out to solve. It’s a really smart way to approach the topic. Most other blockchain books that I have read jump straight into the technical design of the blockchain, thereby scaring away most of the readers as the topic is either too dry or too complex to fathom. With this book, they start out with the use case, and the challenges of traditional finance, which is quite common and understandable, and thereby keeping the readers and urging them to continue. Note to self: The same method can be applied in most other types of communications.

Very early on in the book, the authors established, and later kept circling back, to the 5 main problems of traditional finance that Defi set out to solve. Here are the infamous 5:

  • Centralised control
  • Limited access
  • Inefficiency
  • Lack of Interoperability
  • Opacity

With that as the objective, it’s really helpful to see the authors touch on all the main Defi platforms in the market at the moment, while still linking them back to the problem statement (what problems in traditional finance that Defi sets out to solve). That gives the book a good flow, and not just a discrete collection of introductions to different platforms with little connection between them.

Of course, you cannot totally avoid the technical details when talking about blockchain and Defi, and that is the hardest part of the book to get through. However, having said that, I really appreciate the authors’ effort to only include the most crucial technical information, and not delve too deep into them. There are other books to go for if you want to get to the bottom of the technical of blockchain, and this book’s main purpose is not to achieve that, but to give readers a very good introduction of Defi and its potential, touching on a wide range of topics and applications, so that readers can take the next step to learn more about whatever pique their interest (pick your poison, man, there are quite a few to choose from and move on).

Another thing that I really appreciate this book is that the authors present a very level headed and objective perspective on Defi, not pushing it to the ground like those Defi haters, but not lifting it to cloud 9 and painting a picture of only roses either. I can still feel that they embrace the new finance, and favour it to the one we are having, and place high hopes on its future, but that does not stop them from mentioning at length about the risks of Defi, and also highlighting more than once that the technology, although promising, are still very early and not fully developed yet. I especially love the chapter about Defi risks. It’s very wise to get into a new area with eyes opened wide and ready for not only the good, but also the bad and the ugly, for there are many. Here they are:

  • Smart contract risk
  • Governance risk
  • Oracle risk
  • Scaling risk
  • DEX risk
  • Custodial risk
  • Environmental risk
  • Regulatory risk

Overall, it’s a great book, and whoever interest in blockchain, crypto and Defi should check it out. As for whether Defi will ultimately replace Tradfi in the future, my own opinion is, it may not be a total replacement, but a transformation, as in the good path of Defi will be adopted by Tradfi, so that the new Tradfi will be better, leveraging the benefits brought about by Defi, while minimising the risks posed by Defi using the measures that Tradfi has fine tuned to tackle those risks over the years (most of those risks actually are also applicable to Tradfi, either during its early days or even now).

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