What is the truth behind the decentralized finance hype?
Decentralized finance (DeFi) – one of the most revolutionary uses of blockchain technology – has grown from US $ 0.5 billion in early January 2020 to a now stranded total value of over US $ 50 billion.
What can we expect from this emerging industry and how will DeFi affect traditional and centralized finance or CeFi?
These are the main questions explored by a special panel at the World Economic Forumof World Summit on Technology Governance, which continues today. Panelists for “Behind the decentralized finance hype”Included Aušrinė Armonaitė, Minister of Economy and Innovation of Lithuania, and Rune Christensen, co-founder and CEO of MakerDAO. Angie Lau, Founder and Editor-in-Chief of Forkast. News, served as moderator.
“Basically, DeFi aims to provide universal access to financial tools and services,” Christensen said. “It’s a collection of financial systems and protocols that you can access on the Internet, and the bottom line is that everyone can access them on the same terms.”
DeFi’s superior accessibility, no matter who or where you are, is one of the most valuable aspects of its ecosystem, added Christensen. “This is truly the transformative power of DeFi. That there is no longer a barrier to anyone participating in this unique and interconnected global financial system. ”
Before blockchain technology enabled DeFi, financial services like borrowing and lending were largely only available through intermediary institutions like banks. But DeFi platforms like MakerDAO and others now allow everyone easier and more direct access to financial services through smart contracts.
How does DeFi fit into the wider fintech space from a policy and regulatory perspective?
“The Bank of Lithuania and Lithuanian government institutions wanted to welcome more players into the [fintech] field … mainly electronic payment institutions that provide faster, more innovative and cheaper services to our customers, ”said Armonaitė, whose country is currently ranked 4th in the world among the best fintech hubs in the world – behind the United States. United Kingdom and Singapore, according to FinTech Magazine.
Lithuania has made significant progress in accelerating the licensing of fintech companies, Armonaitė added. While business licensing can take up to a year in some parts of the world, emerging fintech companies in Lithuania can get a full license within a month – which helps the growth of the Lithuanian private sector, Armonaitė said. .
Lithuania has also made efforts to promote DeFi at the regulatory level. “We also need to be open-minded for DeFi, and that’s an important thing for the public sector and regulatory institutions as well,” said Armonait. “We need to apply ‘teach more and punish’ attitudes. less ”.”
As with any new, rapidly expanding industry, DeFi has had its fair share of bad actors, hackers, and other issues.
“If you look at the past 5 years, it is certainly true that there have been a lot of bad apples in crypto, as there is in any emerging new technology bubble. But, I think the clear trend is that she has strayed a lot from the majority which is all about making money, ”Christensen said.
The founder of MakerDAO is optimistic about the future of DeFi. “Despite all of DeFi’s momentum today, it is still in its early stages,” said Christensen. “DeFi only exists in its own little bubble that hasn’t really been interconnected or integrated with the real world, but that’s what will follow.”
Many startups are currently developing the technology allowing more real uses in the DeFi space. But, as countries adopt more regulations on DeFi, the growth of the technology is much slower than it started out, Christensen said. But, he added, now is a monumental opportunity for regulators, politicians and countries as a whole.
“This is about anyone who finds how to basically make DeFi easy with real world assets,” Christensen said.
“A lot of that capital will flow in the first place that will start to enter real world finance on a large scale, and from there it will only grow,” Christensen said. “The benefits are just apparent. There is the efficiency, transparency, security, and social scalability of having neutral middle ground that you use for foundational financial infrastructure. ”
Although they are still in the early days of DeFi, Lithuanian policymakers are already creating a regulatory framework for this technology, Armonaitė said. “We are in the final stages of establishing the anti-money laundering competence center here in Lithuania.”
The Lithuanian government hopes to facilitate better public and private cooperation and information sharing, as well as coordinate the adoption and implementation of the technology. “Hopefully this kind of framework where government and private institutions come together and work together for better regulation [that] would reinforce change and appreciate the creative destruction we face, rather than defend ourselves from it, ”said Armonaitė.
DeFi’s goal is not to completely reinvent the financial system, but to improve a specific segment that is currently not functioning or is not accessible to a large percentage of the world’s population, the panelist said. While the current global financial system works well for many, 1.7 billion people are still unbanked.
DeFi technology enables easy transactions like borrowing and lending, as smart contracts replace the need for a central financial institution, Christen said. “The fact that it can be done by anyone, that it’s completely open and available, is the central element that an infrastructure like Maker tries to address.”