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Yeah but what would the decentralized exchange be used for, other than other crypto?

A bank can legally process a person who fails to come through on a loan. They can physically take stuff. A decentralized crypto network can't do anything to anybody. It can just take the marginal collateral and then the rest swallow the losses...

I feel like defi crypto types discount the power of the physical world.

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You can tokenize anything in concept- right now it's just crypto + small number of stocks. It's slowly building out a distributed version of Wall Street. That is the value-add, and it doesn't need to do anything more than that for it to be revolutionary.

Loans in defi are over-collateralized right now meaning there's very little risk for the lenders. This will likely change as distributed identity/credit scores are implemented.

A couple examples of what's to come: https://cointelegraph.com/news/defi-s-critical-missing-piece... https://medium.com/minaprotocol/snark-powered-defi-teller-bu...

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