DeFi: Who will build the future of finance?

At this time last week, Money 20/20, the world’s largest financial technology event, was in full swing. DeFi and cryptocurrency shined when the show returned to Las Vegas, in sharp contrast with the last 2019 Fintech enthusiasts walking in the lobby of the Sands Convention Center, a symposium on cryptocurrency and Defi Occupying a central position, the scene was packed. On the second day of Satoshi Nakamoto’s 13th anniversary of the Bitcoin White Paper, the President’s Financial Markets Working Group (led by the Department of the Treasury), the Federal Deposit Insurance Corporation and the US Central Bank released a report on stablecoins.

It is in sharp contrast with the enthusiastic hype surrounding DeFi on Money 20/20 and the questions raised by the President’s Financial Markets Working Group. As institutional investment and interest in blockchain and cryptocurrencies have exploded in the past year, the facts have become clear: cryptocurrencies and DeFi are the future of finance. However, it is puzzling, who will build the future of DeFi?

In a panel discussion on this issue, panel members put forward views that were consistent with the government’s potential concerns. In this regard, the industry believes that it should support the creation of an innovation environment instead of suppressing innovation through excessive supervision.

Bitcoin, the largest cryptocurrency (in terms of market value), rose from the shadow of the 2008 global financial crisis. Some people point out that its origin is a resistance to a broken financial system-the financial system is closed to most people, but once in trouble, it will have a negative impact on everyone. The goal of the crypto community points to the desire to create a brighter financial future for all. When the institutional financial community condemned that cryptocurrency is worthless and a fraud, they plunged into the development of the underlying technology and in some cases created their own coins.

However, cryptocurrency poses a threat to companies with vested interests from a centralized market. From a definition point of view, DeFi can be regarded as the opposite of how the current world financial system operates. At this time last year, DeFi was still an idyllic concept. Today, the locked-in total value (TVL), the value of digital instruments used as collateral, has reached an all-time high of $250 billion.

The open source and peer-to-peer features of the blockchain have opened up unprecedented possibilities for finance, but these attributes also bring challenges to the construction of future finance in the current highly regulated industry. The challenge focuses on a series of questions, who is doing what projects? When are these items “expired”? Who should be responsible in the event that hackers and smart contracts go wrong?

Although possible illegal or malicious behavior is the driving force for the strengthening of supervision, it has not yet occurred within the scope of regulatory concerns. Therefore, industry insiders believe that innovators should be allowed to flourish, but they should build new markets with a market-oriented accountability mentality. The DeFi community put pressure on participants to reduce the concerns of regulators. Although the memory of Mt.Gox still lingers, nearly half of the $600 million stolen from the Poly Network has been returned, which shows that the community is united in finding bad actors and forcing them to leave the industry. And maintain its ability to develop in the existing financial system. However, since industry self-discipline is often regarded as a panacea, it is very likely that it will not be recognized by supervision.

Are stablecoins really stable?

Stablecoins are an important part of the continued growth of the DeFi protocol. According to data forecasts, stablecoins have achieved a transaction volume of more than $1 trillion. Their attraction lies in their ability to protect investors from price fluctuations. It is well known that even the most liquid cryptocurrencies have price fluctuations (this is also the origin of the name of stablecoins). However, the continuous development of stablecoins has brought challenges to the US regulatory authorities, because the supervision needs to understand the inherent risks of stablecoins-the key is the loss of value (or confidence) of stablecoins, especially during periods of special stress. When the money market fund broke, let us recall the situation of the reserve fund in 2008.

At that time, the market was trying to digest the news that Lehman Brothers was about to go bankrupt, and even the safest financial instruments, which were touted as stable money market funds for investing in the highest quality assets and short maturities, were the first to suffer. Investors questioned. Although only holding 1.5% of Lehman commercial paper assets, investors questioned the rest of the portfolio, leading to a “bank run” and the final liquidation of the fund. The same concerns were raised earlier this year because investors questioned the reserves behind Tether (USDT). Tether is the fourth largest stablecoin by market capitalization. It disclosed that only 8% of its assets are cash or cash equivalents (Treasury bills and ” Reverse Repurchase Notes”).

So, who will build the future of finance?

The wave of capital flowing into DeFi is colliding with the same amount of regulation aimed at better understanding the impact of the distributed financial system. But there are still some people who may think that regulation is to better control the development of the industry. In various disputes, problems still exist. Who will build the future of finance?

The sight came to Gajesh “Gaj” Naik, a DeFi prodigy. Gaj is used as a case to illustrate whose hands the future of finance lies. As a self-taught coder, Gaj has been coding since he was 8 years old. Starting with C, C++, Java, and JavaScript, he eventually taught himself Solidity with the help of YouTube lectures and online courses at the University of Buffalo. Since his first foray into DeFi, Gaj has been able to raise and manage more than $1.25 million in cryptocurrency in the past year. The irony of this feat is that 13-year-old Gaj is not even old enough to open his own bank account, let alone pass existing KYC regulations. Although Gaj’s success has been hailed by many people, it has also magnified the concerns raised by regulators. If there is a problem with the smart contract of the good coder, who will bear the responsibility?

“I learned about Solidity and then learned it in two or three months.”-Gajesh Naik

It is in everyone’s interest to allow the DeFi ecosystem to develop within the existing framework. However, building a regulatory framework around this new world requires patience, because innovators like Gaj will solve the problems that hinder the most efficient flow of capital.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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