Decentralized Finance (DeFi) has been a hot topic lately which, for those not too involved in the fintech scene, has seemingly emerged from the shadows of obscurity.
Simply put, DeFi is a system where financial products become available on a public decentralized blockchain network. This means that they are open to everyone, rather than going through intermediaries like banks or brokerage houses.
More specifically, DeFi enables a system where software written on blockchains allows buyers, sellers, lenders and borrowers to interact with peers or with a strictly software intermediary, rather than a company or institution facilitating a transaction. .
This presents new investment alternatives that virtually anyone can access, sidelining the tough regulations that traditional financial institutions have worked so hard to establish.
It also exposes the same stakeholders who benefit from DeFi to the same level of risk if they don’t understand it correctly, especially given the unregulated and open nature of the system.
So should we be wary, or get on the train that these investment opportunities present? Will DeFi be sustainable in the long run or is it just a risky trend?
From a panel discussion at Wild Digital SEA 2021, we listened to DeFi experts in the SEA region shed light on some of the intricacies surrounding the DeFi landscape and where it is heading.
Moderated by David Low, Managing Director of Luno in SEA and Australia, the panel was joined by:
The nature of finance has changed
What we used to call currency and traditional investment assets are being decentralized, creating new digital currencies and digital assets that will dictate the economy of the future.
In the last 10 months alone, Sean Lee has pointed out that while DeFi is still in its infancy, some of the most unexpected trends that have occurred in the market are the speed of innovations that are popping up.
“The value for money has changed very quickly,” Sean said. “Investors and asset owners are constantly looking for other asset classes to seek capital, both from a retail and institutional perspective. “
Additionally, due to the way DeFi tends to mimic the financial systems we see in the real world, it opens up investment opportunities for those in underserved markets also. Thus, making financial services more accessible and inclusive overall.
Michael Wu agreed, sharing that the Amber group saw a clear change in attitudes towards DeFi. People went from ignoring him to embracing him with a level of curiosity to understand him.
Interestingly, Michael also noted that people have a clearer demand and better understanding of what they want from DeFi. They can range from users who are simply interested in the end returns of investments to more sophisticated users who want to get more involved in building the DeFi ecosystem.
But there are several pitfalls to overcome first
David asked Ken a question about what he thinks are the main stumbling blocks preventing DeFi from its potential large-scale adoption with the technologies available today.
Ken first stated that the The current UX and UI for DeFi are bulky today and complicated to say the least, even for crypto natives. It takes several clicks to complete an action, and the language used is not the most intuitive for newcomers who have little or no knowledge or experience in the crypto space.
“A lot of those pieces are still being built today, in terms of innovations coming from community-led developers and aggregators to help power the current and hopefully the general user across the board. line to understand space, ”Ken explained.
To add, general training and investment knowledge is required to trade in the DeFi space. This is especially true when it comes to DeFi products that mimic financial systems already present in the real world, such as interest rate swaps, buying and selling stocks, or borrowing and lending. silver.
But at the same time, there are also many crypto-native innovations being developed that do not exist in traditional financial systems. Ken thinks there is still a big gap and therefore many new investors may not fully understand the profit potential of investing in DeFi.
There is also the lack of necessary regulations
An anonymous audience member asked the panel a question, which David presented to the experts.
The United States Secretary of State (US SEC) questions the very nature of DeFi, saying it presents “a lack of transparency and structural barriers associated with the pseudonym that are sure to hold back market development until now. ‘that the appropriate investor guarantees are put in place ”.
Sean was the first to present his point of view in response to this.
“It sounds very funny because for those of us in the industry, DeFi has the most transparency. You have the most traceability in all transactions, especially when it comes to a public blockchain. », He maintained.
“So the notion of transparency is actually quite interesting from that point of view, because if you know how to follow it, everyone can actually do the same.
He reiterated Ken’s point on the need for education as the key to helping the public understand DeFi, and its associated risks.
And in order to do that, the public should first understand what crypto and blockchain are doing. These elements work with each other, with blockchain being the technological infrastructure and crypto being the transactional layer.
Sean compared the adoption of DeFi to that of the Internet, where people have moved from mistrust of data privacy 10 years ago to everyday use of cloud computing.
Ken agreed and added, “DeFi is an unstoppable technology that is gaining adoption over time. “
Michael shared that he’s seeing more encouraging results, with players becoming more open-minded towards DeFi and crypto. He even said that regulations are needed to help the space develop further away.
With regulation, entrepreneurs will have more clarity in planning their businesses, innovations and products.
“When there are regulations, there is a framework to innovate aroundMichel said. there is a solution around that. “
Ken shared his experience on the ground in Singapore. He said regulators have been very accommodating, even proactively trying to learn from DeFi industry players to implement applicable laws based on expert feedback.
“I think overall this is very good for the general adoption of cryptocurrencies, our safeguards in place and investor protection. I think everything is going in the right direction, ”said Ken.
Get a piece of the pie
Before the end of the session, experts were invited to share their advice on how the average Joe might attempt to enter the crypto space, as it is the stepping stone to DeFi as a whole.
Sean examines it from 3 groups, where there are developers, partners (infrastructure builders) and crypto holders.
He encouraged promising developers to jump into the crypto space first. No matter what protocol is chosen, or where they start, the point is to start.
As for the partners who actually build the DeFi infrastructure, they have to choose a concentration protocol or platform and figure out how to make it sustainable (both from a business and environmental longevity perspective) .
Finally, Sean advised crypto holders to educate themselves in an ever-changing space.
“Don’t think it’s just another token or stock that you can just buy or sell. If you are an educated trader in the mainstream world, you can probably handle crypto. But if you are uneducated and just follow the trend, then the danger will be there, ”Sean warned.
Ken added that joining platforms like Abra and Amber Group would also be a good start for those who don’t have the time or a lot of knowledge in the crypto field but want to generate a return. At what, Michael joked that you obviously shouldn’t bet your house on it, but only invest what you can afford to lose.
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Getting involved in crypto and DeFi generally has similar notions to playing on the stock market. There is a high level of understanding and education that must take place in space, and similar risks apply if you use it irresponsibly.
There’s still a lot of education to be done on DeFi before we see more widespread and secure adoption around the world, but once that happens we’ll likely see a snowball of use.
- You can read more about the Wild Digital panel coverage here.
- Read more fintech content here.
Featured Image Credit: Ken Chia / Sean Lee / Michael Wu
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