In a blog post on June 13, 2021, Mark Cuban explains the key advantages decentralized finance (DeFi) businesses have over traditional financial institutions and the key points to look out for when investing in DeFi projects.
Making the Most of DeFi
Decentralized Finance (DeFi) has been touted as the future of crypto and the rapidly evolving multi-billion dollar industry enriches the pockets of savvy users every blessed day. However, there are also risks involved in the juicy business, and Mark Cuban, the owner of NBA outfit Dallas Mavericks has highlighted the key points to note when investing in DeFi.
While there are hundreds of decentralized finance projects currently in existence, with much more springing up nearly every day, Cuban notes that the first thing to do before pumping your hard-earned money into any of these platforms is to find out the nature of their business.
“Yes, every single DeFi project is at its core, just another business. They may or may not know what business they are in, but they are just another business that happens to be using a blockchain and smart contracts to host and program their operations,” he wrote.
The DeFi Advantage
Cuban went ahead to mention some of the DeFi projects he’s currently invested in, including Polygon (MATIC), Zapper.fi, and Bancor (BNT), while also explaining the major advantages that these DeFi protocols have over their counterparts in the traditional finance world.
Specifically, Cuban has argued that the decentralized governance model adopted by DeFi (where miners, validators, liquidity providers, etc control the ecosystem) businesses brings about significant cost savings, as these platforms do not need to spend huge amounts of money on cloud computing infrastructure such as Amazon Web Service (AWS) like their counterparts in the traditional finance industry.
“Any other business you have to raise a shit load of money in order to host your own servers, or more likely pay for cloud computing costs which can be insanely expensive for compute-intensive applications and just as expensive for scaling heavy use applications. Plus you have to hire all the people, have the CapEx to support them, etc,” he added.
According to Coinopsy, there are currently more than 2,000 dead cryptocurrency projects and Cuban has predicted that many DeFi platforms will also kick the bucket in the near future, as stronger competitors will suffocate these businesses.
At press time, the DeFi space has a combined TVL of $121.88 billion, with AAVE maintaining a 10.68 percent dominance, according to Defi Llama.