Crypto Mondays NYC hosted a Twitter Space with Andy Singleton (founder of Maxos) on “The future of DeFi in providing services to the off-chain economy” on July 7.
Among the speakers were DeFi Dad (partner at Fourth Revolution Capital), Nikhil Raghuveera (Strategy & Innovation Partner at Celo), Ethan Protas (Co-Founder of Optim Finance), Darrel O’Donnell (Technology & Strategy Advisor at Continuum Loop), and Mati Greenspan (Founder & CEO of Quantum Economics). The topics covered included De-Fi’s strength in the bear market, the demand for off-chain lending, and how regulators view De-Fi. You can listen to it here or read a few highlights below:
1. Success is defined by how you measure it
The current bear market might make some hesitant to get into De-Fi. They see Terra’s implosion in the news or the tumbling prices for governance tokens of top protocols and might think this is how all of De-Fi is faring. But what flashy headlines miss is that De-Fi isn’t going anywhere. Protocols like AAVE, Uniswap, and Curve are still chugging along in this bear market, proof that Terra isn’t all that De-Fi has to offer. And they’re not just struggling to stay afloat, but innovating and guiding the space to where it goes next.
2. Bringing De-Fi off-chain will make it truly sustainable
Right now, De-Fi infrastructure is focused on on-chain finance, finance conducted on the blockchain, with money circulating between protocols. The next step is having it interact with off-chain markets, markets not on the blockchain. As Raghuveera said, “It feels like we’ve sort of built the infrastructure for Wall Street, but we haven’t built the infrastructure yet for main street.” De-Fi is currently closed off on-chain. By connecting it to off-chain markets, it is able to become a part of regular markets instead of being stuck on-chain. This connection, Raghuveera believes, is what will make De-Fi have a truly “sustainable form.” In being connected to off-chain markets, De-Fi will become a fixture in the global economy.
3. De-Fi can fix what’s broken in Trad-Fi
There are a plethora of things broken with Trad-Fi that De-Fi is capable of fixing. One of the discussion topics was off-chain money lending. While banks often overlook small enterprises, De-Fi’s lighter operating expenses allow smaller enterprises to get loans that they might otherwise be denied. It can help empower people already making loans with access to liquidity and tools like accounting. Of course, there’s still a lot of work to be done, but progress is being made. One of the problems that has to be solved is identity, as O’Donnell pointed out. With KYC and AML requirements increasing as funds become substantial, identity becomes a source for much of the costs associated with lending due to the lack of easy access to needed data.
4. What doesn’t work serves as lessons for the future
One part of working in a new industry like De-Fi is that everything doesn’t always work. Early projects rarely get everything right, but the mistakes they make help inform the next generation of projects. One example brought up was Maple, which allows people to pool money for off-chain yield lending. While off-chain lending is usually thought of as being more stable due to the lack of fluctuations compared to crypto markets, Maple was found to be doing a lot of loaning to crypto companies. Another problem faced by them is how losses are distributed. Since the last people out are the ones that get saddled with the losses, people are incentivized to head out early in order to avoid being among the last.
5. Off-chain De-Fi use-cases make it more familiar to regulators
Most regulators aren’t active participants in De-Fi. They can only view it from their perspective which is more rooted in traditional finance. So many of the current uses of De-Fi, like staking, that are fully on-chain are strange to regulators. Tying De-Fi up with real-world use cases makes it more familiar to regulators as they are able to use their understanding of trad-fi equivalents to connect better with what De-Fi is trying to do. One of DeFi Dad’s fears was that the appearance that Web 3.0 caters to Web 3.0 natives would “be a real turnoff to those who are trying to wrap their arms around all the innovations of what’s been built here” since “if you’re being shunned as an outsider, you want to distrust more of what’s being built there.”