Understanding of the profound influence of stable coins on traditional finances. Part 2

Blockchain is well known as the technology of confidence. We can open any of transactions recorded on a data ledger but we will never know who has actually processed them.

Confidentiality, transparency, ownership and regulation.

Blockchain enables transparency and confidentiality in finances. We call it “transparent” die to the simplified blockchain concept for processing transactions where such notions as “calculation”, “balance” are not needed as they automatically correspond with agreed protocols being registered on a decentralized common ledger.

Besides, transactions based on blockchain cannot be changed.

For cryptocurrencies based on blockchain (this typically refers to Bitcoins), ownership very much relies on private keys. In case you lose your private key, you lose the access to crypto funds.

For maintaining financial relations the system implies models based on confident credit relationships. The advantage is that we can refuse from verifications made by third parties. The main aim of Bitcoin is to eliminate third parties, so banks and governments would be able to reorient finances via the system that does not require continuing trust.

Stablecoins based on blockchain should also comply with the existing legislation and regulations regarding data security and confidentiality. Furthermore, they should correspond with traditional financial services. Currently there are several regulated stablecoins available on the market: GUSD, USD (USDC) и Paxos (PAX) standard. Regulated stablecoins are fully protected. There are also many unregulated stablecoins that provide alternative services but they are more risky and volatile.

As for central banks, they are currently working at developing their own stablecoins in order to make deals with digital assets but they do not require control over their exclusive money issuing.

DeFi is replacing direct finances.

The logics is simple. If we account for launching new financial services, we should rely on blockchain infrastructure.  Actually, the blockchain system may provide almost all kinds devices, and in a more effective way. But the main obstacle that impedes such systems is about contradictory interests of financial institutes and regulators as some of them want to tight monetary control. How long will it take for DeFi to replace the existing f financial system?

The point is that the financial industry has no consensus view but it is obvious that all of these forms will sooner or later be merged into blockchain.