Square is building a decentralized financial business using bitcoin

The payment company Square is launching a business dedicated to “decentralized financial services” using bitcoin.

Jack Dorsey, CEO of Square and bitcoin bull said on twitter On Thursday evening, the company “is focused on creating an open development platform for the sole purpose of facilitating the creation of non-custodial, unlicensed and decentralized financial services.”

The new unit will include the seller, the Cash app and the recently acquired Tidal businesses.

Decentralized finance applications, or DeFi, are those that do not rely on centralized authorities like banks, but instead use blockchain-based smart contracts to execute transactions. Most are built on the Ethereum blockchain.

DeFi applications make financial transactions more easily accessible, efficient and relatively inexpensive. They have also been very appealing to yield seekers who can generate returns of between around 15% and 30% by participating in the DeFi ecosystem – by “locking in” capital in smart contracts.

“DeFi platforms work the same as traditional banks and financial services companies and could pose a risk of disruption in the years to come,” Needham’s John Todaro said in a recent report focusing on the opportunity. Challenge. “In the current environment of underperformance, there has been an increased demand for DeFi platforms that offer significantly higher returns than traditional financial products.”

But like cryptocurrency business in general, DeFi comes with many types of risk, including regulation, asset volatility, and the technology itself. Because there are no banks or other third party companies facilitating transactions, there is no insurance on funds that might be lost. Cryptocurrencies are volatile, which means that assets pledged could quickly lose value if a downturn occurs, which could lead to the liquidation of positions. And there might be some errors in the code of the original smart contract.

The current estimated value of funds currently stranded in DeFi-related contracts is $ 55.21 billion, according to DeFi Pulse.

Dorsey said the team is committed to building in a transparent way that includes an “open roadmap, open development and open source.”

Mike Brock, who leads strategic initiatives within Square’s consumer product Cash App, will lead the new company.

“Technology has always been about decentralization,” he said in a follow-up tweet. “From printing to the internet to bitcoin, technology has the power to distribute power to the masses and unleash human potential for good, and I am convinced that is the next step.”