The Rise of DeFi
Happy New Year and welcome to 2020’s first edition of Tokeny Insights. This article is taken from our newsletter that has been going for over a year now with many topics covered, feel free to revisit past editions here.
We expect Decentralized Finance (DeFi) to make big advancements this year. More large firms will come to the realisation that fully developed decentralized blockchains carry better benefits than centralized networks. Institutions are becoming increasingly aware that compliance and control can be applied to these systems through permissioned tokens and onchain identities. What’s more, private blockchains are struggling to progress, with Ernst & Young and Forrester Research identifying these networks on average have 0.5 participants when excluding the founders. In contrast, Ethereum has 7595 nodes operating on the network as of today, and with by far the strongest developer community. My point is, by creating so many private and siloed networks, doesn’t that defeat the purpose of what blockchain was set out to do in terms of removing fragmentation?
At Tokeny, it’s for this reason we believe decentralized infrastructures will transform finance. But what does this mean? DeFi is the concept of a financial ecosystem living digitally on a shared infrastructure. Open-source protocols or modular frameworks are relied upon for creating and issuing assets on this network, much like email exists today. DeFi will replace the current infrastructure that exists in financial markets because of three main attributes:
Many processes have existed because functions need to be performed by trusted and regulated actors such as custodians, escrow agents and paying agents. These actions can now be programmable through smart contracts and executed on the most resilient infrastructure that has ever existed.
Such processes are inefficient because market participants work on private and siloed networks. This results in slow functions, duplication and error. By utilising a single and trusted network, many functions that exist today will be drastically improved, leading to higher performing assets.
Private markets are extremely local because the infrastructure makes distribution expensive and difficult. Issuers still struggle to find investors and investors find it difficult to find a project that fits their mandate. DeFi allows issuers to onboard investors globally in a seamless and inexpensive manner.
“Tech is the enabler,” as recently noted by Mike Mayo from Wells Fargo. For companies that wish to harness the benefits of DeFi and utilise the technology as a competitive advantage, it’s essential they select an appropriate enabler to facilitate this journey. For over two years we’ve been creating the institutional grade technology required for actors to benefit from this shared infrastructure and we’re looking forward to sharing our announcements with you in 2020.