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Can someone remind me what the purpose of conventional finance is again?
by Aqueous 5y ago
Can someone remind me what the purpose of conventional finance is again?
- coolspot 5y agoProvide resources (in form of capital) where they are needed and most efficient (generate RoI).
- latchkey 5y agoTo buy big houses, fancy cars and big yachts for people who are paid to make you fear money by telling you everything is risky and you should only keep your money with them. We've been believing that story for years.
- rib3ye 5y agoTo pay for debt by creating new debt and forcing spending before the currency loses purchasing power.
- throwaway2331 5y agoTo legitimize a pyramid scheme of an economy.
- kgin 5y agoA market-based way of allocating resources to new productive ventures and rewarding those who allocate the best.
- AussieWog93 5y agoA chain of responsibility. If someone tries to scam me, I can call the bank and get the transfer reversed. If someone robs me and steals my wallet, they can't empty my bank account. Convenience and simplicity (from the user's perspective) is a big factor too. Crypto exchanges solve this problem, but then we're back to square one in terms of trusting an institution, rent seeking etc.
- jedimind 5y agoThat's only the positives, on the flip side: - Your government can freeze your assets on a whim, because you criticised the wrong people or exposed some of their institution's crimes ( whistleblowers ). - Destroy your business in an instant, by cutting you off from funding and other services for whatever reason they deem appropriate. Every system has its pros and cons, but I totally understand why people are excited about defi.
- ryan93 5y agoTo your first point how many people in rich countries have that problem. Seems like reversibility that conventional banks offer is way more useful to most people.
- Ekaros 5y agoOn first point. Hasn't blacklistings of wallets already happened? So I don't see any reason why wouldn't governments be able to enforce such as well? Or even major exchanges... Give a good reason and steal the money...
- jedimind 5y agoI am by no means an expert on blockchain protocols, but the whole point of Bitcoin or Defi is that a central authority is unable enforce their will on a whole network. You should consult actual experts on the matter tho
- Ekaros 5y agoBlockchain might not, but users of it such as very centralized exchanges certainly have. Outside things like Monero, enforcement where it matters is entirely possible.
- fennecfoxen 5y agoThe primary purpose of finance is to move money through time. Finance can turn streams of income into lumps of capital, and vice versa, so you can do fantastical things like buy a house — without working out a 30 year installment plan with its current owner. Finance can IPO a startup so that it can hire people to write code and use that code to make money. Finance can let a farmer enter a contract to sell his future crop today, when he’s buying seed and fertilizer, without worrying that the grain price will plummet. Insurance — finance’s cousin — moves risks using money, so your life won’t be ruined forever if your crop dies or your house burns down.
- betwixthewires 5y agoI'm glad to see this response here, this distils it to it's basic utility exactly. I'd only add that assessing risk, that is, assigning a numeric and subsequently monetary value to the likelihood that a prediction will not happen in the future, enables this to occur. Without being able to move risk around you cannot move money through time.
- opportune 5y agoI don't think there is a separation between finance and insurance like that. Risk is part of finance as well. For example by bundling loans financial entities can pool risk similarly to insurance - but it's not insurance. In fact I'd go so far as to say all of finance is about managing risk because assets (all loans are assets)/financial positions generally fall on a line from <not risky, low-yield> to <risky, high-yield>. This is true for both aggressive speculative hedge fund managers and conservative banks. Everybody (who knows their shit) is following the Kelly Criterion in some way as a result, even if they may not know it. And your competitive advantage as a financial entity is generally to price risk better than other market participants. This still benefits the public because by pooling, commodification of financial instruments, and accurately assessing risk financial entities are able to compete against each other in a mostly-open market leading to competitive and fair pricing.
- mejutoco 5y agoThere is at least one useful purpose: To lend you money that you do not have to do buy something now (they of course take a cut).