DeFi: Is it the future of finance? Or too volatile to become mainstream? A panel of experts gives us their thoughts.
The panel of experts didn’t all agree on the future direction of DeFi. Some, like Anderson Mccutcheon, the CEO and Founder of Chains.com isn’t feeling the vibe. “DeFi is headed downward. The future of retail finance lies within systems that are regulated, secure and provide users with products and services that they can easily understand. The future and present for high-net-worth individuals (HNWI) and institutional finance are with multi-trillion dollar entities that power our economy today. Real market demand for DeFi is only going to shrink.”
Others are more upbeat. Dmitry Tolok, VP of Growth and Co-Founder of Primex Finance. He thinks that DeFi will not only go mainstream but replace existing finance.
“DeFi is headed to becoming the new standard of how people exchange value. The mission of DeFi is to decentralize ownership and eliminate middlemen. With more and more financial products moving towards decentralized environments and the growing sophistication of financial use cases, it will eventually replace the majority of existing financial services.”
Asaf Naim is the CEO and Co-Founder at Kirobo. “As I see it, DeFi is likely to become ubiquitous in the coming decades once the issues of scalability, usability, and security have been addressed. At this time DeFi is used by a small number of people who have in-depth knowledge and indeed the barrier to entry is high due to the knowledge required. It will take time for the industry to lower the barriers to entry and for DeFi to go mainstream.”
DeFi to gain traction
Eric Chen is the CEO and co-founder of Injective Labs, core contributor to Injective. “DeFi is continuing to gain major traction from everyday users and institutions despite the overarching macro conditions right now. The initial iteration was largely focused on relatively basic financial primitives. However, now we are witnessing a major expansion within the sector in which more sophisticated applications such as structured products are becoming increasingly commonplace.”
Chen says the next stage of DeFi evolution will focus on embedding Web3 powered products into everyday applications. “For instance, you may see a mainstream app or website with fiat on-ramps but the backend is entirely governed by smart contracts. I fundamentally believe that this is necessary in order to reach the masses who may not be familiar with the often complicated crypto native products. This is a major focus for Injective now as well since many apps launched on top of Injective such as Helix are creating gateways to onboard everyday users and institutions who may be new to crypto.”
Bear market problems
Diane Dai is the Co-Founder of DODO. “We are currently in a DeFi bear market, yet decentralized trading users continue to increase. It is an unstoppable force on the eve of innovation. A lot of the value has been identified but builders continue to work hard and adoption continues to expand. DeFi will absolutely be the future of finance but not in the way we currently know it. In the not-so-distant future assets on the blockchain will become more diversified. Decentralized derivatives are one example of this. Tradable assets will not stop with FTs and NFTs, this is just the beginning. Assets pertaining to identity, the metaverse and GameFi are being created right now in Web3 and this space will be mind-blowing.”
Dai says that while there is a great deal of volatility in DeFi right now, it will not always be this way. “When something is new, it is often volatile, but over time it levels out. In the way that some people prefer an apple over an orange, some people will always prefer traditional finance over DeFi. However, the service that blockchain offers will allow it to become more and more mainstream and always have value. One day it will not be as volatile and that will mean that the value has all been discovered. This is not just about financials, it is a cultural paradigm shift.”
Resilient in the face of harsh macroeconomics
Julian Koh is the CEO and Co-Founder of Ribbon Finance. “DeFi has proven to be extremely resilient in the recent market downturn. While many CeFi platforms like Celcius and Voyager went bust, all the major DeFi platforms like AAVE and Compound were still intact and worked perfectly. This is largely due to the transparent collateralization mechanisms and the immutable nature of blockchain and also showcases the potential of DeFi to become the backbone of finance in the future. “
Koh says CeFi isn’t the same as DeFi, and more people need to realise this. “More people also need to understand that hacks, exploits, and scams aren’t all that DeFi has to offer. They don’t have to take crazy risks or do gigabrain degen plays, and just utilize existing financial strategies such as covered calls for example, but enjoy the automation and ownership which DeFi provides.”
Zen (Zhen Yu) Yong is the CEO of Web3Auth. “One of the fundamental core aspects of DeFi is self-custodial ownership of assets. The recent implosion of CeFi platforms such as Voyager and Celsius, and subsequent freezing of user assets highlight the importance of dealing with account censorship and restriction to access.”
Yong says people think decentralization isn’t important until they realize someone else can just deny them access to their own deposits with centralized providers. “DeFi is here to stay but volatility isn’t the main roadblock to mainstream adoption – accessibility, education, improving of UI, UX and security is. Builders need to make it simpler and safer to access and adopt DeFi. There’s been about $545M worth of digital assets lost from users forgetting their seed phrases and other silly mistakes. But that doesn’t have to be the norm when you can securely manage keys through distributed modules only accessible to the rightful owners.”
DeFi lightbulb moment
Ahmed Al-Balaghi is the CEO and Co-founder of Biconomy. “There is a clear interest and investment in building Decentralized Finance (DeFi) as the future of finance, one without intermediaries and gatekeepers. We see more institutions having that light-bulb moment as they venture into DeFi. There are roadblocks, however, with the volatility of cryptocurrencies receiving a lot of attention but this is a short-term concern. Large funds and institutions will project over the long term. Right now, the problems interacting with DeFi dApps remain. It doesn’t matter if the price is stable if you can’t get your investments moving quickly. Institutions, for example, care about compliance, security, and ease-of-use.”
Al-Balaghi says the future success of DeFi really lies in making it as easy to use as our favorite apps. “No one wants to see the nuts and bolts of the tech, which we are experiencing now. They want to take control of their assets and money. Decentralized finance is working towards transactions that are done simply through a few prompts and the user doesn’t even know what chain they are working on because their dApps will be able to send transactions across different chains without issue. DeFi is headed towards being a standard, an everyday occurrence that lives in your pocket and you don’t think twice about.”
DeFi vs CeFi
Jane Ma is the co-founder of zklend. “DeFi and CeFi live on a continuum. Rather than viewing DeFi as a complete re-engineering of existing financial systems, one can see it as an improvement focused around censorship resistance, transparency and permissionlessness through blockchain technology.”
Ma says the future of finance will continue along this spectrum. “These fundamental concepts of DeFi will live on, and products will continue to evolve to adapt to mainstream preferences in the years or even decades to come. The adoption of institutional DeFi in the past year alone by players such as Goldman Sachs, JP Morgan or the introduction of institutional DeFi protocols exemplify such a gradual, yet undeniable, shift. Like with early-stage companies or financial innovations, as products, operations and markets mature, volatility will also decrease, ultimately reaching a more stable equilibrium. The question on mainstream adoption is not if, but when.”
An interesting space
Matias Dorta is the CEO of AssetDash. “DeFi is in an interesting space. First and foremost, I believe DeFi has proven its use-case since the initial launch during ‘DeFi Summer.’ We now have many multi-billion dollar lending protocols, Uniswap is doing volumes on par with Coinbase, and DeFi is now extending to the world of NFTs with BendDao and JPEG. DeFi also proved to be more resilient than many of its CeFi counterparts during the bear market. The foundation for continued growth is there and should be accelerated with improvements in governance and UX.”
Dorta says DeFi will be the future of finance to a certain degree. “I don’t think all forms of traditional finance will cease to exist. However, forms of traditional finance will start leveraging DeFi. We are already seeing that today with products such as Compound Treasury that allows intuitions to generate yield in DeFi. You may start to see real estate contracts, certain bonds, etc. on-chain. DeFi and CeFi will start blending in a way and users will use both without even noticing. I do see a world where certain subsets of the population mostly rely on DeFi-related products. In areas with less banking, crypto wallets are becoming the alternative. I believe we see this trend accelerate in emerging markets.”
Dorta says that DeFi is not too volatile to become mainstream, but clear government regulations would help. “I also don’t think government regulations are the ‘end all be all’ for the future of DeFi. The beauty of decentralized systems is they can exist without the permission of any single entity. However, a catalyst for mainstream adoption would be government clarity and this would also reduce volatility.”
Volatility due to size
Simon Furlong is the Co-Founder of Geode. He doesn’t think anyone can know whether DeFi is the future of finance with any true degree of certainty, since the next big thing could be just around the corner. “However, if things continue on their current trajectory, I think it’s a safe assumption that Web3 will continue to gain a foothold in the industry, and our culture as a whole. There’s a strong aura of change surrounding the perception of decentralized finance, and the younger generations generally embrace it wholeheartedly.”
DeFi may not be the only future
Furlong says it’s hard to say if it’s the only future of finance. “I would be inclined to say no. The incumbent financial system birthed many powerful organizations, with vast amounts of resources, and many of them are not on board for a decentralized future. I would say it’s most likely going to be one aspect of our financial future, existing alongside privatized, and more traditional systems. In my eyes the largest hurdle is regulation, since it is certain that governments the world over will only roll out more legislation regarding DeFi and cryptocurrencies as a whole.”
Furlong says that volatility is something that impacts any financial system under a certain size. “It takes very little to spook retail level speculative investors, and when that’s the entirety of your market participants, the price can change wildly at any moment. Concurrently, it also works to entice new participants – positive news can easily skyrocket prices and return incredible profits for investors who were willing to take the chance. However, once institutional investors start entering the market, regulation begins to take hold, etc., this is when you end up with a mature market that’s much less volatile.”
The crypto winter will not last forever, so let’s watch this space when the big thaw hits.
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