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Shaping the future of finance

It is not decentralised OR centralised … it is decentralised AND centralised

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I’ve talked a lot about a global basket of digital currencies becoming the norm. Then, as I started developing ideas for my next book – CeFi vs DeFi – I realised that the way the world is moving is to have both. Why can’t we have stablecoins based on a basket of USD and RMB CBDCs combined with a mix of BTC and ETH?

Now, for those stumbling across my blog for the first time, you probably have no idea what I’m talking about but, the core of the discussion is what we value. If you’re a believer in central governments then you want Central Bank Digital Currencies (CBDCs). But not everyone wants to have the nanny state on their shoulder telling what to do and not do. These are the folks who want liberty or, as we call them generally, Libertarians.

This sets out the stall of Libertarians versus those who believe in the state, the Statists.

It is a debate that has gone on for years and is clearly represented in our arts. From the fantastic painting of La Liberté guidant le peuple (Liberty leading the people) by Eugène Delacroix to songs such as I’m free by the Soup Dragons, there is a constant friction between the State and the People or, if you prefer, the Statists versus the Libertarians.

The challenge today is that the people have a weapon. The weapon is the internet.

Those who understand the network, and know how to use its power, can fight against state controls. This covers everything from the dark web networks to using cryptocurrencies to encrypted apps to things you would never discuss with your friends or family. The network enables this. The question is whether it allows it?

The network does not recognise countries or country borders, so how can countries with borders control it? The network does not recognise regulations and rules, so who sets the rules and regulations? The network places power to the people, but do the people know how to use that power? With great power comes great responsibility – are the people responsible?

These questions have been bubbling in my mind for over a decade – ever since Satoshi Nakamoto’s whitepaper that created bitcoin. Can we really create a world without intermediaries or centralised systems?

It’s funny as this is one of the things I’ve been proven wrong to have stated. Thirty years ago, as a wistful youth, I felt there was no need for intermediation. It’s a perennial discussion in the financial industry: why do we have banks and brokers? We don’t need them if we can deal directly through the power of the people. If the internet allows us to harness the power of the people, then governments, banks and more are unnecessary. We just run the world like an Uber app or eBay, using star ratings for trust.

Unfortunately it does not work that way in reality. In reality, we are happy to work without borders, controls, intermediation or government, until things go wrong. When we lose our money, who do we turn to? If your bitcoin wallet is broken, who are you going to call?

This is why my contention is that decentralised finance will work fine for everyday transactions, such as day-to-day payments. On the other hand, higher value services and higher value transactions, such as a loan or mortgage, will stay with the intermediated systems of banks, government and finance.

This is where DeFi and CeFi work together in HyFi, Hybrid Finance. DeFi is for day-to-day small stuff; CeFi is for bigger and more complex things; and HyFi combines the power of the people with the power of a regulated system.

It is not an either/or but an and. Decentralised finance where centralised governance is added when it matters. That’s one view of the future.

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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