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Mark Cuban on why DeFi will disrupt banks: 'Some industries are change adverse'

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Mark Cuban, owner of the Dallas Mavericks looks on prior to the start of the game against the New York Knicks at Madison Square Garden on November 14, 2019 in New York City.
Mike Stobe | Getty Images Sport | Getty Images

Billionaire investor Mark Cuban is bullish on the growth of DeFi, or decentralized finance, applications, and thinks that they will pose a challenge to traditional banks.

To him, the "foundational DeFi benefit is that it simplifies borrowing for personal purposes," Cuban tweeted on Thursday in response to a debate about DeFi.

"It's a hassle to borrow money from a bank," he said. "And [DeFi] allows anyone with funds to be a lender as well."

DeFi applications aim to recreate traditional financial systems, such as banks and exchanges, with cryptocurrency. Most run on the Ethereum blockchain.

As Cuban mentions, through DeFi lending, users can lend out cryptocurrency, like a traditional bank does with fiat currency, and earn interest as a lender. The barrier to entry to borrow is low compared with that of a traditional system. In most cases, the only requirement to take out a DeFi loan is the ability to provide collateral with other crypto assets.

"[B]usinesses, decentralized or otherwise, tend to benefit when they offer customers the path of least resistance to get what they want and/or need," Cuban said. "DeFi is not monolithic. It's competitive. It will evolve to meet customer needs."

Cuban admits DeFi won't "automatically end banking" because "banks aren't stupid," but he predicts DeFi applications will still disrupt the traditional space. "Like [how] fintech picked off features that opened doors to apps that garnered millions of customers, I think DeFi will evolve the same way," he said.

"Some industries are change adverse. It's the innovator's dilemma. Banks could have simplified/automated to the point that DeFi wasn't needed. They didn't. They are so stuck in legacy [operations] they are disrupted by simple fintech," Cuban continued.

However, DeFi is much riskier than a traditional bank for a number of reasons.

For one, there isn't regulation or insurance on your money when you use DeFi, and due to the volatile nature of cryptocurrency, investors would need to be comfortable with large swings in price. If there is a downturn, the crypto assets used as collateral may sharply decline in value, and some investors may see their positions liquidated. That's why experts warn investors should only spend what they can afford to lose.

Even Cuban admits that "DeFi is a platform that can be scammed."

Looking ahead, Cuban predicts the "big players" in DeFi will "welcome regulation" since it will "allow the industry to grow and still have a Wild West aspect," he said.

Cuban has long been a supporter of DeFi and the crypto space as a whole. He has an extensive crypto portfolio with investments in bitcoin, ether, dogecoin and other altcoins, along with NFTs, or nonfungible tokens, and many blockchain companies.

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