DeFi – The World’s Biggest MVP?
Promises of financial freedom, transparency, accessibility and security. The highest of all bars set. An era of global financial interoperability – borderless, cheap, instant and perfectly automated. Humans disintermediated and utopia achieved. Indeed 👀 . Lofty goals
If only this MVP had been described a little more accurately. Something like; “a collection of new financial and technological services, products and systems that may or may not work exactly as described”. Everything would have made a lot more sense
Cheerleader or naysayer, the past few years have been a rollercoaster. Fortunes are being made and lost. Crypto empires rise and fall. Those that remain strive to survive, stay relevant and thrive. But what’s the secret sauce of DeFi success? How to move past the hyped MVP? Can DeFi grow up? There may not be a golden bullet, but below are some guard rails that can serve as a guide or at least basis for debate…
Transparency and Accountability
DeFi platforms must provably operate securely and with open integrity to earn trust. Audit and reporting services should be baked in as standard. Proof of reserves isn’t enough. Proof of solvency and client safeguarding are minimum requirements.
BIP’s and EIP’s alone do not maketh an industry. Problems, opportunities and use cases should be prioritised. Excellence in UX/UI channel design should be sought to maximise usability and accessibility. User assistance should always be available.
Platforms must plan carefully for scaling, ensuring capacity to support safe and secure user growth, with mitigations in place to prevent loss and/or illicit use of funds.
Co-operation and Collaboration
DeFi, CeFi, governments and regulators should work together to create a financial system that is more efficient, accessible, and resilient. DeFi platforms can leverage CeFi expertise in AML, risk management, compliance and more. CeFi institutions can learn from the cool kids on the block (pun intended).
As DeFi grows, so too will the need for regulatory compliance, a key component for protecting consumers and maintaining financial system integrity. If developed with industry, regulations can help provide direction for common standards, ultimately making CeFi and DeFi more interoperable.
DeFi may, in a distant future eliminate intermediaries. Until perfection in security and code is reached (possible?), this will most likely not happen. In an interoperable CeFi/DeFi world, intermediaries will provide valuable services like dispute resolution, elevated security monitoring and fraud prevention
The opportunity to iterate a new financial system is here. Baby steps