Bitcoin, Ethereum, EOS: these are not simply cryptocurrencies. They are the foundation of decentralized finance. DeFi aims to revolutionize the traditional financial system by empowering the individual and bypassing centralized intermediaries. Although these are still the early days of DeFi, innovation is happening fast. What can we take that’s centralized, making it decentralized and see some kind of tangible improvement. Bitcoin is decentralized. It’s the only thing that’s decentralized.
Everything else is just companies. Crypto DeFiance 2019, hosted by Equilibrium was one of the first dedicated DeFi conferences in the world. DeFi developers, blockchain experts and innovators gathered in Singapore to explore the enormous potential of decentralized finance. Decentralization is not an on/off switch.
It’s not a true or false value. This is a range. When the average person figures out they can actually earn a safe, stable return using decentralized finance products, I think we’re going to see an explosion in this space. Hey, everybody, my name is Dylan Love.
I’m head of news for Cointelegraph. We’re on location here in Singapore. This is the Crypto DeFiance Conference. Everybody here is talking about decentralized finance, blockchain technology and the role that cryptocurrency is going to play as it ramps up and becomes more mainstream.
DeFi, I think until six months ago was really a niche thing, but only a certain subsection of the crypto community talks about and got excited about. And then projects like Maker DAO came along, Equilibrium, all these various decentralized focused products. And that started a debate. And that debate was really what can we take this centralized, make it decentralized and see some kind of tangible improvements.
So we have seen people like CZ influences in the space come out and go, okay, what we’re doing is a public chain, on that public chain you can build decentralized applications. So they are building the infrastructure, helping to build the infrastructure from which people themselves can then build DeFi applications on top of it. Traditional finance, there are a lot of restrictions.
There are a lot of people who may not be able to access the credits and even like banking in general banking, but DeFi kind of break down of barriers. You can go cross-border. You can go to the region that people with a smartphone. They may be able to get credit. They may be able to do transactions.
Decentralized finances for us it’s something we truly believe in. And it has enormous potential, especially for a company from China. We have lots, lots of users and a big market in China. There will be a lot of other big players such as Tencent or Alibaba.
They have invested a lot of their resources into this technology. Allowing financial activities without relying on centralized institutions is essentially the goal of decentralized finance. But what does decentralization really mean? For some, the answer is simple. Bitcoin is decentralized. It’s the only thing that’s decentralized.
Everything else is just companies. And you can integrate Bitcoin into your project. But when your project claims to be decentralized, when in reality it’s impossible for your project to be decentralized. People like me to speak up about it and we’re accused to be maximalists. Do others have a more nuanced view that we should instead be asking how decentralized is a project? Which parts of the project are decentralized and is full decentralization even optimal? Decentralization is not an on/off switch.
It’s not a true or false value. This is a range. An exchange can be decentralized in the fact that there are non-custodial and they can be centralized on the matter of token listing and they decide which tokens are listed or not. So that’s a degree of centralization. The real determining factor for exchanges is at the end of the day, users trust you as an exchange.
Are you developing a trusted brand? Is your UX simple and fast to use so that more new people can adopt it without being a financial expert or professional traders? Does your exchange support enough? Toll compares that it’s really attractive for people to come in and explore new assets. Decentralization per se is not the goal.
We can leverage that to obtain a lot of abilities and we can actually utilize a lot of features that decentralization allows for. One of the main focuses of this year’s Crypto DeFiance conference was stablecoins.
Stablecoins attempt to bring stability to the wilder world of cryptocurrency. What you really need to understand before dealing with a stablecoin is how does that stablecoin work? How does it peg or maintain its value, its stable value, whether that’s pegging itself to a dollar or to the great British pound or to the euro?
How does it do that? Understand the mechanisms behind that. If it’s Fiat backed, where is that fiat held? Where is its custody? All those kind of very important things you should understand because it will affect, one, the solvency of that stablecoin and two, your ability to redeem it for the fiat that supposedly backing it.
If it’s a crypto back stablecoin, unfortunately, you need to get into the details of it, you need to understand how the risk management piece works, how, for example, the fall in the asset price that backs that stablecoin, how that impacts the actual overall ecosystem itself.
So, unfortunately, it’s a complex area and this is one of the areas I think that the stablecoin industry can definitely do better in making it more accessible, more intelligible to the general public.
Clearly, you need to do your research. On the one hand, there are mainstream stablecoins such as Tether which are heavily dependent on a centralized custodial entity. On the other hand, DeFi projects such as Terra or Maker DAO seek to maintain price stability, relying on open-source trustees protocols.
Which is best and who can we trust? What makes a stablecoin good or bad against other stablecoins? The trust that people are willing to place under that stablecoin, it’s maybe the number one aspect. Then, of course, that translates into the volume and the liquidity.
People are willing to invest in that asset. The real-world use cases like can I actually go and spend that stablecoin somewhere. Between a centralized stablecoin generate by one asset-backed class that it’s customized by one centralized company. If you differentiated with Maker DAO or Equilibrium’s EOSDT, which is backed by users funds that are staked into the contract. Well, it allows for much more transparency.
I think the trust eventually will shift from that centralized Tether stablecoin to decentralized stablecoins. Decentralized stablecoins may be seeking to solve the problems of cryptocurrencies. But are they ready for the public? DeFi products still face many challenges, including scalability limits, regulatory compliance issues and poor user experience.
But with initiatives like Crypto DeFiance, bringing together the brightest minds in crypto, how long will these challenges last? When will we be ready to go mainstream? Blockchain is so, so revolutionary that for ordinary users it’s a little bit harder for them to understand how it works, such as there is no one else to take care of your account anymore.
You need to take all of those things by yourself. And that means there will be a lot of challenges for us to educate ordinary users and promising projects such as a Libra, such as a DCEP, definitely going to bring a lot of users in this industry.
But the thing is, as a practitioner in this industry, are we fully prepared to serve a lot of population. A year from now, we’re going to see much more adoption. We’re going to see a greater understanding really of the core value and benefits that come with decentralization.
And I think we’re actually going to see some central what I call the maximalists from the centralization space, maybe pivoting a little bit and saying I can see the inherent benefits of some decentralization and they will slowly be bringing decentralized products out to market as well..
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