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Comment by TimJRobinson | Hacker News Reader

I agree with your comments on the private sale.

DeFi is necessary because currently only 0.1% of the world has access to the financial tools on Wall Street, and the current financial game is heavily rigged by those with money and power. By open sourcing the process and allowing everyone to partake everyone in the world gets access to massive financial markets and can build interesting products using loans, derivatives, options, futures etc. They also get to play the part of the bank and earn money providing liquidity to trading pools, loans, short-sellers etc.

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It's not really a question of technology, it's about trust. Nobody will lend money to a farmer in Africa just because he's using some crypto tech.

On the other side, few of the "financial tools" of Wall Street depend on technology. The reason Goldman or some financier can raise a bond to finance something is not related to technology, it's again about trust. Which can't be decentralised. It can perhaps be crowdsourced I suppose.

As to options, futures and other derivates (ha) very few people have any use for them, and that single digit percentage of the population most definitely have no trouble getting a bank account.

Speaking of bank accounts, why do some people in the third world lack them? It's not because of limited bank technology. This "banking the unbanked" argument is heard all the time, but I've never seen any concrete explanations.

You're still looking at it from the perspective of how everything works today.

Really think hard about what a multi trillion dollar worldwide financial system will mean and you'll see so many new possibilities open up.

For example, how do you start a company to insure farmers in Kenya today? You have to find a large company with a large pool of money available who ALSO has to think investing in farmers in Kenya is a good idea AND is willing to put in the effort to work with you to set this up. This is almost impossible to find, so this is a startup that most likely won't succeed.

Now in 2040, there is a global decentralized insurance marketplace. On this marketplace you can describe the type of insurance you require (perhaps insurance against lack of rain, perhaps cyclone insurance) and put it online. People and companies from all over the world can look at the request, run the numbers, and invest in your project.

Not everyone will be using these tools, but when everyone has access to them startups all over the world can flourish by building real products for real people using this liquidity as their backend.

Insurance companies run on two things:

1. Pooling risk 2. Knowing the customer

By pooling millions of clients they lower the volatility and thereby achieve a sort of risk/reward arbitrage compared to the customer. Insuring a single individual without diversifying the risk doesn’t work, you need the pooling. You also need to know the customer, so you can assess the risk, in order to properly price it, and avoid scammers.

It seems you are proposing a system where both of these are eliminated.

It might be possible to build something, but I have yet to see any convincing attempt. Actually, I haven’t seen any concrete outline how it would even work in theory, only hand waving.

Do you have any suggestions at all?

Btw, what you described not only doesn’t make sense because of my two points above, it isn’t really decentralized, and it doesn’t need crypto.

The insurance startup is the one that's verifying customers and getting them signed up. Then they get the financial backing via investors from this global liquidity pool. They put the proposal out there, investors put money in, then they have the liquidity to make their company a reality.

https://etherisc.com/ is working on many different forms of decentralized insurance atm.

OK, I spent some time on the website but can't really see how this is "decentralised" if customers have to sign up with them. Or is the innovation here to let more people put up the money? For the benefit of whom, the investors? The insured will likely not care.

So why is defi necessary to make this happen?

I feel this vision defeats the whole purpose of defi. The Kenyan farmer still needs to sign up with a centralized insurance provider. The insurance provider also now needs to overcollaterize their loans...and at that point why not just cut out the middleman defi pool and use that capital to run as any traditional insurance provider would?

In any scenario you still need a company to vet/insure the farmer.

I understand your perspective on DeFi in general and agree that it is necessary. Perhaps it's a case of perfect being the enemy of good enough. It does make me wonder if the current generation of crypto will be disrupted by something that functions in line with the stated goals of crypto AND is rolled out in a way that aligns with it? I guess they are betting on lock in but what is to stop dapps working with multiple protocols/cross platform in the future?

I think Ethereum is as close as we'll get to this ideal for DeFi. Now that DeFi is known to be valuable it's really hard to distribute anything evenly without the rich being able to obtain more than everyone else.

Nothing. See RenVM.

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