DeFi advocates claim that his nascent industry will continue to grow and, ultimately, make good on its promises.
“By eliminating the need to depend on intermediaries, DeFi makes traditional banking services much more accessible.“
Leading DeFi protocols are now finding exposure to real-world assets.
DeFi “has crossed the threshold of speculation and investment.“
Decentralized finance (DeFi), which is not so decentralized after all, is going through a soul-searching phase right now. Since Terra collapsed in May and brought with it some background, there’s been a widespread feeling that DeFi doesn’t offer much other than round-the-clock lending and reckless leveraged speculation, the kind that can cause a failed chain reaction if a domino falls. .
Given that Terra’s failure has led to other failures, there’s certainly something to doubt this. However, working figures in the crypto and DeFi sector confirm that DeFi is still a young field, and that it will mature and solidify as it develops.
Indeed, many expect there will be increasing integration between DeFi and legacy finance in the coming years, while it will also find applications in areas beyond finance, such as the Internet of Things. Things, digital ID and data storage. And the more it does this, the less it will revolve around volatile lending and almost speculative borrowing.
DeFi’s potential beyond speculation
There has been no shortage of criticism for DeFi since May, when Terra was destroyed and collapsed repeatedly throughout the space.
In response to the fact that a number of platforms are joining to help advance the field, software engineer Stephen Diehl, a crypto skeptic, commented in late June that “most of the rhetoric is about Decentralization in crypto is ambition at best and at worst empty marketing.” Meanwhile, MetaMask co-founder Dan Finlay told Vice in July that “many of the crashes that happened in this last round were things that were branding themselves as DeFi but then actually worked. like a shadow bank with great leverage.”
One commenter even suggested that “DeFi is dying” in response to the fall of the summer, while two other prominent crypto skeptics, David Gerard and Amy Castor, have teamed up on a “dead and dying list” for Defi at the end of June. Meanwhile, FTX founder Sam Bankman-Fried compared DeFi yield farming to Ponzi schemes.
Essentially, the driving force behind all this criticism is too much DeFi involving highly leveraged speculation: platforms take deposits from users after promising high yields, and then use these deposits are for lending to other platforms or for self-investment. Of course, with the cryptocurrency market notoriously fickle and volatile, speculating with other people’s money is rarely a good idea.
However, there are still many DeFi defenders in the crypto space, all of whom continue to assert that the space will continue to grow and, ultimately, make good on its promises. This includes Jason Ma, business development manager for Web3 infrastructure network Axelar, who told Cryptonews.com that DeFi is a natural evolution of the current financial system.
“DeFi eliminates intermediaries and central oversight, making financial markets more accessible to retail investors and creating new investment opportunities. Decentralization democratizes banking and finance by ensuring easy access to financial services for all, especially in developing countries,” he said.
Regarding its potential, Ma argues that DeFi adopts many of the strengths from using blockchain technology, such as transparency that can improve due diligence and help people identify and avoid financial scams. potentially harmful business practices. Likewise, immutability through smart contracts provides additional protection against bad actors and fraudulent transactions.
Other metrics concur when it comes to tapping into DeFi’s future potential, even if it’s not yet fully realized.
“DeFi is potentially one of the most compelling use cases for cryptocurrencies, as it allows any business logic to be executed on-chain, in a transparent and trustless way,” said Till Wendler, co-founder of blockchain economy of things, said technology provider peaq.
This kind of testimony isn’t hard to come by, with crypto commentators making some bold claims on behalf of DeFi and where it ends up in the longer term. For Pedro Isaac Lopez, Head of Growth at THORWallet DEX, DeFi is a “critical ingredient” in building a more inclusive global financial system.
“By eliminating the need to depend on middlemen, DeFi makes traditional banking services much more accessible, opening up a wide range of innovative tools enabled by blockchain technology. These services and tools include swaps, borrowing or lending, generating profits from crypto assets through pooling and profit farming,” he told Cryptonews.com.
Lopez pointed out that, even after the recent downturn and subsequent crash, the total value locked into the ecosystem’s DeFi platform hovers around $70 billion, according to DefiLlama. For him, this is a sign of DeFi’s robustness, and an indication that it will eventually be used to deploy and manage capital more efficiently and adapt to market conditions. The field changes in a way that was not possible before.
The present and future of DeFi
Skeptics are likely to argue that ambition has yet to materialize and probably never will. That said, there are plenty of examples of DeFi platforms achieving things in the present, rather than just signaling a utopian future.
“For example, the MakerDAO community recently approved a proposal to integrate a US bank into their collateral system,” Jason Ma said, referring to the US-based Huntingdon Valley Bank. , currently has a debt ceiling with MakerDAO of $100 million after the Maker’s community voted to accept it into its ecosystem.
“It will be possible to borrow funds in DAI by depositing collateral into an off-chain account. Five other real-world assets have already been integrated into MakerDAO, with more suggested in the board discussion,” Ma added.
Maker also recently voted to allocate $500 million in DAI to U.S. Treasury bills and corporate bonds, meaning DeFi has begun to play a role in allocating capital to the global economy. If you accepted that banks, treasury bills, and bonds were useful to the world economy, you may now have to accept that DeFi is useful.
Until Wendler also agreed that many of the top DeFi protocols are now seeking real-world exposure to assets, citing cases of business-to-business lenders using DeFi to invest in assets. businesses that provide real-world services, such as Fairmint.
“We have seen some momentum in crypto mortgages. The industry is slowly but surely moving towards real-world results and that’s exactly where it should be if it wants healthy output and service,” he said.
According to Naureen Mustafa, Head of Exchange Development at Lisk, DeFi has already begun to transform the real estate, insurance and crowdfunding industries, among others.
“For example, DeFi is eliminating the need for paperwork and all the middlemen in the real estate industry. Now you can buy real estate tokens or even entire assets simply by signing transactions through your digital wallet and can become an asset owner without being involved bank, broker or government agency, etc. ,” she told Cryptonews.com.
A recent example of a DeFi and real estate merger includes the partnership announced in June between Teller Protocol and Tower Fund Capital, which will see those who deposit with Teller receive payouts. interest rates to finance mortgages and loans awarded by Tower Fund Capital.
Sure, such partnerships represent beginnings, but they show that DeFi is expanding and that it is not a leveraged mechanism for crypto speculation.
“While speculative lending and borrowing applications have seen the fastest rates of adoption, the entire DeFi sector is in its infancy, and I strongly believe that it will expand to include corporate finance, real estate, content production and distribution, and more,” said Mattias Tengblad, the CEO and co-founder of blockchain-based crowdfunding platform Corite.
Many others agree that it is still early days for DeFi and that the recent crises suffered by Terra and Celsius will only help it mature. As Naureen Mustafa concludes, there is innovation at every level of the field, from underlying blockchain protocols to decentralized applications to front-end user experiences.
“It has crossed the threshold of speculation and investment,” she said. Serious use cases are currently under development, and DeFi services are transparent, powerful, and technologically more advanced than a centralized financial system. “