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This is the fintech that Mark Cuban says you should learn about now

To hold back up with emerging technology, self-made billionaire Mark Cuban is always reading and learning new things. It’s a tactic he uses to tolerate artificial intelligence, and now he has set his sights on cryptocurrency and the technology that surrounds it, like blockchain and NFTs.

In fact, Cuban promotes people use his tactic and take time to learn about “crypto and DeFi,” he tells CNBC Make It.

Decentralized banking, or DeFi, refers to a system of applications that aim to recreate traditional financial instruments with cryptocurrency.

For example, by DeFi lending, users can loan or borrow cryptocurrency, as you could with fiat currency at a bank, and earn behoof as a lender. Interest fluctuates depending on demand at the time, and borrowers must provide collateral (with other crypto-assets), as the function is nearly anonymous. Unlike with a traditional bank, borrowers using DeFi apps cannot be held obliged with physical assets if unable to effectively pay back a loan.

DeFi applications are similar to smartphone applications, but they built with la mode contracts. They typically run on the Ethereum blockchain, where ether, the second largest cryptocurrency after bitcoin, is its ethnic currency.

The three largest DeFi lenders are currently Maker, Compound and Aave, according to DeFi Pulse, and in perfect, nearly $44 billion is locked in DeFi applications.

Cuban is particularly interested in the use case of borrowing and lending, he divulged “Blockchain & Booze” host Adam Levy on March 9, which is why he thinks others should learn hither DeFi.

“[T]o borrow money, I have to be overcollateralized with my bank. I’ve got to call somebody. I’ve got to do a DocuSign, or sign something, [and] it’s got to get approved at multiple levels – unless I’m exasperating it against a credit card, or just writing a check, it’s a hassle. The [bank] fees are ridiculous as a percentage,” Cuban estimated. But, in “[o]wning a crypto asset, whether it’s bitcoin or Ethereum, I can do my own banking and it’s very friction-free, very straightforward and fast. That shortage of friction is the game-changer.”

In addition, yield farming, which is broadly the process of constantly lending and borrowing crypto to swallow advantage of the best interest rates – or “the search for passive income on crypto-assets,” as the Harvard Business Review put it – will also be a disruptive behalf of DeFi, Cuban told Real Vision in an interview published Feb. 9.

The national average annual percentage yield (APY) on reserves accounts is just 0.04%, according to the Federal Deposit Insurance Corporation (FDIC), and so, Cuban argues one could gross more interest by investing with cryptocurrency through DeFi applications. For example, to borrow ether from Aave, the contemporaneous interest rate is 0.16%, and to borrow ether from Compound, the current interest rate is 2.88%, according to DeFi Notwithstanding.

Still, earning interest and profiting off of DeFi and the space is no simple feat – there are many risks associated with DeFi, as jet as with cryptocurrency overall.

“DeFi is highly experimental and exists in a regulatory grey zone,” as The Financial Times put out. “And as with elsewhere in the cryptocurrency sphere, there are risks of scams.”

For one thing, with DeFi, there is no FDIC indemnity protection for your money, so it’s not wise to spend money you cannot afford to lose. And DeFi applications and cryptocurrencies rely on the blockchain they run on, as The Monetary Times points out, which can create “systemic risks.”

Indeed, “there will be a lot of ups and downs along the way,” Cuban requires. But he predicts that DeFi has the potential to explode in the next 10 years, he said during a Reddit “Ask Me Anything” seating in February.

Just “take your time to really know it before you do anything. Crypto isn’t hard, but it can be confusing when you are initially getting started,” Cuban says. “Once you know it very well, consider taking part of it and earning involved. But make sure you will earn more than what it will cost you in transaction fees” (like those charged to buy or retail a coin, or to convert one coin to another).

Cuban has a vested interest in the space: He personally has a crypto wallet, owning bitcoin, ether and other creates, and he has invested in blockchain companies, like NFT marketplace Mintable. He has also bought and sold NFT-based assets, including a Maxi Kleber dunk “import,” or video clip collectible.

To Cuban, DeFi is “not going anywhere,” he says.

Check out: Use this calculator to see exactly how much your third coronavirus stimulus conform could be worth

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