DeFi — Consider This
Things to think about:
This is very early days in this space and I haven’t had a chance to dig deep yet, so bear with me.
DeFi is the provision of financial services of many flavours in a decentralized manner without a central liquidity provider, such as a bank or investment fund or other legacy body.
As such, providers of liquidity can stake funds to provide finance to others with a guaranteed ROI.
The absence of a middleman mitigates fees and other overheads and the tech itself drives speed and facilitates delivery of liquidity to people using services, without the normal delays and bureaucracy of a legacy structure such as traditional banking and financial services.
There are many people building on this now, and the current sentiment is reminding me of 2017 a lot, but there are certain things that must be provided by a quality DeFi project to guarantee durability, adoption and growth.
Many will fall by the wayside without ticking all these boxes, and hopefully I can list many of them below:-
- Liquidity provision — from lenders who can be easily on-ramped in a secure and user-friendly manner.
- Good fiat on/off-ramping linkages to help drive point 1, for lenders and borrowers as required (in the short term — 3–5 years from this point).
- True Cross-compatibility re tokens/coins — interoperability linkages will help a lot here and most of them are not quite there yet, nor are they ubiquitous. When this really kicks off it will scale exponentially.
- Friendly UI tools non-tech people/normies can easily use. Ease of use and simple UI(that hides away all the high tech stuff — for an example of good ux vs bad ux, look at compound (good) vs curve (bad)). The whole selling point of DeFi is to let normal people like you and me do the job of banks now, without having all the necessary knowhow of how to run a lending system, as it is handled/sorted all thru SC, so there has to be that abstraction away from complexity toward simplicity for the user too.
- Secure data vaulting — of user information and assets in a decentralised manner.
- Scaling — Eth 2 could well be a significant factor here, as could the integration of ‘true’ atomic swap capabilities.
- Dynamic supply/demand matching that functions in real-time for both lenders and borrowers — this is clunky on many platforms and needs to improve and be more responsive, which is function of platform development in algorithms in teams; more use of narrow AI architecture would be a significant driver here. Ampleforth is a good example.
- Dynamic risk/rewards structures between staking lenders and borrowers that is based on real-time and real-life needs — and it must adjust constantly based on financial metrics and utilisation, plus asset price fluctuation; a necessary follow-on from point 7.
- Sound business management on a daily operational basis — this is a customer-facing business and should be managed accordingly, just a nice portal UI platform is not enough.
- Quality targeted marketing and links to legacy liquidity for growth? Dependent on country, cultural and regulatory environment.
- Regulatory compliance — something we all hate, but rest assured the dinosaurs will come after DeFi in this area with a vengeance, since the nature of DeFi is a significant threat to legacy banking business models and some traditional governmental oversight controls.
- >2 billion USD is currently tied up in liquidity pools/reserve programs/defi apps, and the APYs range from good (Tether 5.6% on poloniex) to insane (metastables 100%+). This is changing and growing rapidly. The challenge is to grow alongside quality building and best practices, both business and code-wise.
Many projects will fall short when addressing these things in some areas, so it’s a bit of a crap-shoot right now mostly. Some are good, many are just #bandwagon pivots and attempts to cash in, just like late ’17 onwards.
It takes more than a token sale and a working DEX template and some algos to build a REAL business here, as people will learn.
Caveat emptor
DYOR
The Nagus
