Thread by @RobotDefi

TRYING TO EXPLAIN #DEFI TO MY MOTHER

I'm on a mission to help onboard as many "normies" possible into the world of DeFi

It requires choosing the right words & analogies to help explain technical concepts

So heres a 🧵 I hope you find helpful you can send to your own normies 👇

First, let's start with concepts we understand.

INCENTIVES. The world revolves around them. Everything anyone tries to get someone else to do involves incentives.

I mean, what is dessert for a child if not a bribe to finish dinner?

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The world of finance is no different.

What bank do you open a savings account with?
Probably the one offering the highest APR (incentive).

What bank do you have a checking account with?
The one with cashback rewards, or lower fees, etc.

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Here's the thing about traditional finance, though.

Financial institutions have MASSIVE overhead (physical buildings, tons of employees, etc)

Also, notoriously greedy execs who require an avg of 390x more in salary than their waged workers.

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This leaves precious little in the way of incentives.
That's why APRs are so low and in many cases non-existent (hence lower fees as an incentive).

Bottom line: Tradfi is bloated, corrupt, and inefficient.

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So what is Decentralized Finance?

Well, #DeFi, at it's core, is a system of similar financial structures, but without the bloat (and ideally without the corruption).

DeFi offers efficiency, in the following ways...

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It's all online, so there isn't any physical overhead.

It's also all handled by smart contracts, so staffing is minimal.

AND, everything is transparent. <--- that part is important, let me explain.

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Everything on the blockchain is visible. You can literally go to the blockchain "explorer" and see every transaction.

SO, if a DeFi protocol wants to be greedy and allocate ridiculous amounts of funds to their employees (like bank execs) then you can see that.

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For that reason, many probably won't try to be (too) greedy.

Also, because decentralization is a big selling factor in DeFi, many protocols offer incentives in the form of governance or profit sharing.

So EVERYONE shares in the profits, not just staff.

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AND, since there isn't any bloat and little corruption (if done well), there's a LOT more money to offer, so APR's can be significantly higher.

So let's recap this a bit (by now my mom is looking a bit confused).

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Everything revolves around incentives.
DeFi is an efficient, less corrupt way to disperse funds through financial instruments as an incentive for customers/users.

This is because of the use of automated programs called Smart Contracts.

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But WAIT! (I can hear my mother now).

How is automating it with a program going to make it more secure/less corruptible?

Excellent question...

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Simple answer - smart contracts are immutable. Sure, they get hacked, but unlike a simple program in Web2 a smart contract can also automate defenses, making it VERY difficult.

Also, due to the nature of blockchain, hacking can be near impossible in some cases.

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That's why the bulk of exploits are either built in by the protocol owner or socially engineered.

But we can save that for another thread.

Suffice it to say that smart contracts, when done well, are VERY secure.

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In fact...learn more about smart contracts and their potential here:

https://twitter.com/DeFi_naly/status/1530195375633612800?s=20&t=vyGHSHHnEq3-p7QCKxZNWg

Anyway, to wrap up...

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So, with #smartcontracts, decentralization, and block explorers, DeFi protocols can offer all the same traditional financial instruments:
lending/borrowing
depositing for interest

...many more complex instruments available only to brokers before.

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But DeFi levels the playing field and allows all of this to be offered to anyone.

With DeFi you can take control of your financial future.

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DeFi is the next frontier in the way we handle funds.
It offers more security and efficiency.
It takes power away from a centralized elite and places it in the hands of users.
It also gives users custody of their value.

DeFi is so much more but this was a primer.

For mom.

🧵/f

You can read the unrolled version of this thread here: typefully.com/RobotDefi/VAFK…