We’re On Track to Revolutionize the Financial Landscape

In 2021, the global DeFi market was estimated at $11.96 billion, a figure expected to surge as the technology advances. However, many conventional banks and financial organizations remain unaware of the immense potential offered by decentralized finance.

The clock is ticking for TradFi

Industry experts within the cryptocurrency realm forecast that decentralized finance will surpass traditional financial institutions in the coming years. Mike Belshe, CEO and co-founder of BitGo, a digital asset custody provider, expressed his belief that banks will be replaced by DeFi within three to four years. In an exclusive interview during BitGo’s developer conference, held on October 25, 2022, Belshe elaborated on this prediction.

In fast-moving markets like cryptocurrencies, accurately valuing assets can be challenging. Market makers have historically played a crucial role in ensuring efficient market and exchange operations. However, market makers sometimes make decisions that exacerbate market downturns, leading to further price declines. They may also suspend activities during periods of high volatility, negatively impacting the market. Regulatory bodies such as the United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) exert strict control over market makers. Consequently, extensive human labor is required to monitor their activities on a daily basis.

A more streamlined financial sector

With the emergence of DeFi applications, human brokers are becoming obsolete. Apps built on DeFi can integrate market maker research into smart contracts, transforming them into code that faces regulatory scrutiny and criticism from shareholders. This eliminates the need for authorities to monitor broker agreements, while investors can purchase assets at more favorable prices.

While the use of Automated Market Makers (AMMs) has its challenges, such as code vulnerabilities and concerns regarding the safety of DeFi applications, progress is being made to address these issues. Programmers with computer science backgrounds are working diligently to minimize defects and enhance the security and reviewability of smart contracts. However, regulatory and compliance obstacles still persist. Therefore, it is premature to expect DeFi to completely supplant traditional financial institutions. Nonetheless, with concerted efforts, significant changes are likely to emerge within the next three to four years.

The role of developers in the sphere’s advancement

This all can be attributed to talented defi developers in the industry that refuse to give up on the technology despite its highest and lowest points. One example is Broxus, which is the team that took over the Free TON project, transforming it to Everscale. As proof that their efforts paid off, Everscale was purchased by Venom (whcih is Abu Dhabi’s owned licensed blockchain). This all happened during the bear market, proving that developers thrive during less optimistic times to provide actual utility, putting DeFi ahead of the finance curve, and making the technology appeal to traditional financial institutions.

The growing popularity of distributed ledger technology (DLT) is compelling financial institutions to adapt and provide services tailored for this expanding sector. While DeFi is currently in its infancy, experts anticipate substantial transformations by 2025. Banks that fail to adapt to this changing landscape risk becoming obsolete, similar to the way banks faced challenges during the advent of the internet.

Resources

1. https://www.globenewswire.com/en/news-release/2023/03/07/2622443/0/en/Global-Decentralized-Finance-DeFi-Market-Expected-to-Surpass-USD-232-20-Billion-by-2030-At-a-CAGR-of-Nearly-42-6-According-to-Latest-Research-Study.html
2. https://cointelegraph.com/news/defi-will-replace-institutions-entirely-says-bitgo-ceo-mike-belshe