What’s Wrong With DeFi?
How do we define true Decentralised Finance?(DeFi)
“Decentralized Finance (commonly referred to as DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum. DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts.” [source]
What is the problem with DeFi right now?
The distribution of funds in the crypto space is still relatively centralised with the majority of funds in the hands of relatively few.
Part of this is because the technology is still in its youth and adoption still hasn’t reached the masses, although the path towards real mass adoption is getting clearer by the day.
The Problem of centralised funds still persists as a lot of coins and tokens are in the hands of the big players in the industry like binance, (case for centralisation is another topic), coinbase and Kraken, FTX, etc. Binance takes on a special role because they alone, as a centralised exchange, have ~8 times the volume of every decentralised exchange combined, making it crystal clear that there is still a lot of progress to be made to achieve true decentralised finance.
What needs to be done to achieve true DeFi?
Like with every ideology, there are some limitations to the realisation of an utopia (a truly decentralised finance system that is fully operational in the real world) so there have to be some compromises. When talking about DeFi, it is important to remember that it should be in everyone’s best interest to aim for the highest possible convergence(HPC) of idealism and practical implementation.
In order to understand how society can reach that highest possible convergence(HPC), one should get familiar with the concept of successive approximation. While reality can be harsh sometimes, evolution has proved that improvements have to be made in increments. So a lot of small steps/improvements have to be taken/made for a organic and realistic move towards a desired goal, like in this case a true (or as close to true) decentralised finance system.
What’s the right path towards achieving true DeFi?
Apart from time, the key factor for adaptation is participation. Every crypto enthusiast can take an active role in helping with moving the idea of a truly decentralised finance forward. This means (re-)distributing the as of now still very centralised market shares to the average person. In order to further disperse these financial resources and give everyone a fair chance of participating in an independent market, exchanges mark a pivotal point. A widespread allocation is only possible if there are a lot of different, ideally independent, exchanges that grant access to assets with each acting as a sort of contingency for another, avoiding risk of corruption.
The requirements for those exchanges are steadily rising and rightfully so. Investors want to be able to voice their concerns when putting their hard earned money at risk and the weight of their voice has been rather small in the past. It’s clear that it’s one of the major challenges of exchanges to empower the individual investors and give them the right to vote on important decisions.
What’s the right approach to the growing needs?
With growing desire for participation comes the question on how to meet the needs of the growing crypto community.
While complete decentralisation (thus implying a chaotic approach about decision-making) is not a desirable outcome, exchanges need to think of reasonable ways to include their investors in decision-making processes.
SwapDEX -for instance- offers its users participation through an elaborate voting and consensus mechanism that strives to best represent the interest of each and every one of their investors through nominating the most trustworthy validators (nodes that supply the blockchain with the hardware necessary) and voting upon council to ensure long term stability of the chain and the trading D’Apps deployed on their native SwapDEX and KUSARI Chains.