The Role of DeFi in the 21st Century Economy

BlockDown 2020 is bringing the best brains of the blockchain to the mainstage in a virtual 2-day conference. As BlockDown 2020 media partners, we will bring you a rundown of exciting stories from talks, fireside chats, panel discussions as we cover blockchain technology during and beyond COVID-19, news from the DeFi world and more. Stay tuned!

We attended a panel discussion on “The role of DeFi in 21st Century Economy” in the first day of the power-packed virtual conference.

Panelists included:

  • Nikolaj Lollike Maker Foundation’s Head of Integrations
  • David Johnston Yeoman’s Capital Managing Director
  • Jose Mercado Amazix

We bring to you the most important excerpts from this discussion:

What are the advantages of DeFi?

David Johnston: Anything that provides loans, borrowing, staking, and some sort of rewards in return of putting in capital. It also removes the middlemen. It reduces costs. Hence it gives great returns. A billion dollars have flown into DeFi contracts. People are getting 7-10% from lending.

How big is DeFi?

David Johnston: It is small but growing quickly. The ICOs had millions of dollars flowing in. They also had a huge impact on the Ethereum Protocol. People use Ethereum. There is now $ 8 Bn in Stablecoins. The combination of DeFi and Stablecoins is powerful.

Nikolaj Lollike: DeFi is going to get bigger. This is because you can create open and equal access. Base them on decentralized infrastructure like Ethereum. To access them all you need is a decent internet connection. The back end services being built at a protocol layer can be put together and integrated solutions can be made. You can take Dai and put it into a Lending protocol.

Who is using these products?

Nikolaj Lollike: Maker has seen natural demand in countries where there are deflationary currencies. Example: Argentina. Also in areas where there is not a centralized solution to financial problems.

How much knowledge do these people need? How much is the gap in knowledge?

David Johnston: Things are getting easy. It’s a simple web page. With a click of a button, you can stake or lend cryptocurrencies. It is retail-driven. Why will I keep money in a bank if I get a good percentage in Compound or staking rewards in Cardano?  In a recession, 7-10% sounds attractive. People are not going to get into equity. People are looking for safety. This is perfectly timed. You do not need to go back to traditional finance institutions.

With DeFi, is it problematic that we are dependant on Ethereum? Is interoperability enough?

David Johnston: Ethereum is an ecosystem. They are not tribalistic. They are creating interoperability solutions. We still do not have one dominant player. They all specialize for different purposes.

Nikolaj Lollike: The Maker Protocol is based on Ethereum. EVM is used by other smart contracts as well. It can be deployed on other main nets. There also exist different sidechains that use Dai as the main currency. I don’t think we have seen the last blockchain network yet. Different blockchain networks have different value propositions. There is some value in having permission chains for institutions. We don’t want silo systems where we need to build the entire ecosystem on a new chain. The Ethereum ecosystem is already built and can be leveraged.

For DeFi to grow does it need institutional players?

Nikolaj Lollike: Definitely. Defi is collateral driven. You lock assets to generate a Stablecoin. For that to scale, you need a large collateral pool. At Maker, we are very interested in bringing real-world assets into the system and scale up by billions.

David Johnston: That is the key. Bring the real-world assets into the blockchain. Crypto started with Bitcoin, Ethereum and all these native protocols. But we need the Fiat currencies coming in. We need to have the ability to move them into Blockchain. Pegnet does that. Pegnet has reached $ 79 M in conversion inside the network in the last 24 hrs. So clearly there is demand.

Vulnerabilities in Defi. Has that been detrimental to this space?

Nikolaj Lollike: Defi is open, transparent and auditable. In the Maker Protocol, you can go in and check how much value movement has happened. What happened with Maker was not a bug or vulnerability. There was a lag in Ethereum. In terms of risk, it’s a very big topic to go into. There are risks in infrastructure.

David Johnston: The flash crash had nothing to do with Ethereum or Maker. It had to do with oracles. We have to move to decentralized oracles. Pegnet has a very good oracle solution. We need to think about, how do we derisk oracles at each level.

Central banks are looking to ban stablecoins. What does it mean for Defi?

Nikolaj Lollike: The meme is that Bitcoin gets banned every second month. At Maker, we have a Legal Team monitoring the regulatory framework in different situations. We are working very closely with regulators at the EU and the US to explain this novel technology. What we see is a lot of positivity towards this technology. It is something that keeps evolving.

David Johnston: There is effectively going to be a bifurcation. Either you are going to be a centralized bank issuing a stablecoin, or an entirely decentralized stablecoin. Every predecessor of bitcoin failed because they were a central company. You can’t stay in the middle. That’s what is coming for stablecoins. Either fully regulated or fully decentralized.

Nikolaj Lollike: Some decentralized exchanges still have backend services. This is where it becomes really hard to govern these protocols. At Maker, it is governed by a community. We are run by smart contracts in Ethereum.

Jose Mercado: Overall I think it is bullish for this space. It does not change anything. It accelerates us towards where we were going anyway.

David Johnston: People now have freedom. This was something that the wealthy had. What crypto is doing is lowering that barrier to a retail level. Anybody can pick their monetary policy. I have the freedom to opt-out of the Federal Reserve monetary policy to a programmable monetary policy. We have seen 30-40% of inflation in traditional finance. I would better go with something which holds value.

With the COVID crisis will people start getting the message?

David Johnston: If you cant get cash out of the ATM and the local bank is closed, the only option you have is to opt into something else, hopefully, crypto.

Previously, we covered Binance CEO, CZ’s fireside chat on QE to Pump Bitcoin Price. Stay tuned, we have more updates coming from Blockdown 2020.


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