As decentralization becomes a core trend in BigTech, its hallmark – Decentralized Finance (DeFi) – marks as the most adoptable iteration of the notion. But is it possible for DeFi to overcome the traditional, merely centralized financial industry?
In order to evaluate the perspectives of DeFi, I spoke to Bryan – a former Chief operating officer (COO) at Swapsicle decentralized exchange, DeFi enthusiast, and a FX prop trader.
Below – an expert outlook on the initial purpose of decentralization and its utility.
– You are a former COO at Swapsicle decentralized exchange and trader. As a specialist with such an extensive experience, please tell the readers briefly: how did you find yourself in the crypto industry?
– I was first introduced to crypto in early 2017 before the first big bull run of this year. I was working as a realtor at the time and had clients who would be waiting to close on their new house with their moving trucks outside but couldn’t move in yet because the lender’s money to close on the home still had not arrived yet. I was determined to find a better way to transfer and settle money. I said, “It’s 2017, and it takes hours for money to be sent from one bank to another”. We can now see 7 years later, there are infrastructure upgrades on the back end finally utilizing blockchain technology.
– At which point did you seek to enter DeFi as a specialist? What motivated you to do so?
– I was always interested in money and finance, but I didn’t care much for the traditional investment offerings. I quickly learned that DeFi allowed users to be in control of their funds through self-custody. I knew the financial system was in need of a major overhaul for our ever-changing economy. It was the year 2021 (that some referred to as the “summer of Defi”), when I really began to understand that these DeFi products were very similar to the traditional investment opportunities, except there wasn’t a middle man skimming all the profits off the top and direct participation was the key to success.
– Which criteria can DeFi products boast of as advantages compared to traditional banking?
I would say that the two main advantages of DeFi products compared to traditional banking is that you are in control of every move: the good, the bad, and the ugly. I’ve always had more of an entrepreneurial spirit, so this was the perfect fit for me. The second advantage among others is that there isn’t an entity you need to share the profits with, you share with the other users using the platform. Although I do believe in paying for services provided, with smart contracts enabled, we don’t need to tip or to be extra-charged for utilizing code that is simply executing what was written to achieve. This leaves all the profit on the table to be shared with the users of a specific platform. You may say, “Well what about the developers who created the smart contracts?” Well of course they’re compensated for their creations, but JPMorgan makes money off my money even if I don’t use a single one of their facilities or employees.
– Can DeFi outpush traditional banking? If yes, what factors should be achieved for DeFi actors to accomplish this goal?
– I think we’re seeing a push towards this with the younger generation. Do I think it will ever be fully replaced? That’s a tough one to predict for a few reasons.
The first one is regulation. I’m all for autonomy of your finances, but we still need to be cognizant of bad actors in the space and how DeFi can better spot this. The mechanisms themselves, I think, are better than traditional finance in certain cases, but there’s a glaring issue of scammers, unknown funds etc. I think the good, honest builders in this space need to help educate the regulators instead of seeing it as a Yous vs Them. This is no different than when the Internet was first rolled out, there were websites you would go to, where you would order something, and it would simply never ship, and then the business would close, so this concept of “rugs” has always been around. We just need to do a better job of utilizing this tech – not just to innovate, but to protect the users of platforms as well. A sort of standard needs to be implemented while also not giving everything to the government to use against its citizens – it’s a very fine line.
My worry and other’s is that the term “terrorist” seems to be thrown around nonchalantly. There’s always a need for a direct distinction between a citizen expressing his/her concerns against their government, and an organization that plots to bring physical destruction, drugs, crime, etc.
In my opinion, the word “terrorist” is thrown around too lightly these days and just because someone wants autonomy of their identity, funds, and critiques their government, does not mean they’re some sort of terrorist. As the great Benjamin Franklin once said, "Those who would give up essential Liberty to purchase a little temporary Safety deserve neither Liberty nor Safety."
– Is decentralization causing more risks than opportunities in the financial dimension, or vice versa?
– I would say that having verifiable on-chain data and decentralizing data storage is making finance more transparent and secure. When it comes to the bad actors and scams in this space, the people outside the Web3 space will also zoom in and say, “See, this will never work”, and will always associate that as a bigger risk than anything. I’m definitely not here to claim those things don’t exist, but we didn’t give up on the Internet because of illicit activities. There is no denying inherent risks in this space, but we as a society seem to correlate “security” with centralized databases that can be hacked and “refunds and return policies”. This is not true security for me, but more of a daycare center for finance where the teacher keeps all the profits in order to keep the children “safe”.
– A latest survey by Consensus reveals that only 24% of its respondents are globally aware of the concept of Web3. Which steps would you take to increase this number?
– Mark Cuban once made a comment that Web3 needs its “Snapchat” moment, meaning this space needs some sort of dApp that everyday users cannot live without.
Finance is still a niche industry within society. Sure, most people have some sort of 401k, IRA, etc. But that is handled by money managers. Web3 puts that responsibility back into the hands of the users. Some may rejoice at that, while others simply wish to live their lives without worrying about investment decisions.
I think, as Web3 continues to progress, you’ll see gamers being more excited that they can transfer in-game skins via NFT and actually recoup some of their money they spent on them if they wish to no longer own them. Concert goers will quickly adopt when they realize if they have to cancel at the last second, transferring their ticket to someone else via NFT will be easier.
Lastly, think of the airline industry. It's a nightmare if anything needs to change about a plane ticket, but with this technology, we can enable a smoother experience for users.
I think for all of these ideas to come to fruition, there needs to be an overhaul of the technological rails society runs on, so this technology can be adopted into everyday life.
One more point I’d like to make is the Healthcare industry. Currently, the most secure way to transfer information in that industry is via fax. Blockchain can allow private intranets to connect to other secure intranets via an intermediary secure blockchain that both secure intranets can access. Think of a car accident where the EMT immediately uploads the patient's report to the blockchain, and the incoming hospital and nurse get a ping that this patient is on the way with the full report. Once the nurse is able to chart her notes and pass on to the doctor who can access the full report via the chain. This doctor then prescribes medicine and alerts the pharmacy who gets a ping. Finally, the insurance company also has access as well as any PT or specialist that needs to be notified.
This is the world I envision, but privacy rails must be in place to ensure that I as an everyday citizen don’t have access to that information and things like a pharmacy can’t change notes a doctor made. But this really is the power of decentralization of data and informational access of the future. Oh, and, of course, being able to make payments and verify payments all along that same chain via a Web3 wallet.
– Does DEX-originated liquidity actually impact the market? How?
– I think DEX liquidity plays a part and it depends on the assets you’re trading. Something like BTC, ETH – the “big boys” if you will – I don’t think are necessarily impacting the market as much as they’re stabilizing and supplying more opportunities for traders. Arbitrage has and always will exist in trading, in which there are price discrepancies between an asset with fragmented liquidity. Traders and bots will locate those differences and level out the price bringing more opportunities. As per the smaller altcoins – of course, DeFi may be their only market as a CEX does not have them listed, so in that sense DEXs do not only impact the market, but they are the market for those tokens.
– The Web3 industry is built around the notion of decentralization. Still, we could not achieve it to the fullest. Will decentralization prevail, or is moderate centralization staying?
– The decentralization part for me simply refers to the storage of information, verification, and transparency. Not everything needs to be done autonomously.
For example, I think the presence of DAO’s is a great step forward for bringing a sort of decentralized democracy. The users, who invested into the products, have the most say. If you don’t like something the DAO is doing, you can simply sell your tokens and move onto something else. To me, that’s freedom of choice. Our current system says “You can have choice, but within these restrictions”. For example, things like a cell phone. You do HAVE the choice to purchase something outside an iPhone or Android, but do you really want to? This notion of “well, you still have a choice” is a bit misleading.
With Web3, it’s more personalized to exactly what you’re looking for. You can fine tune your preferences because there isn’t a giant monopoly in the space that is giving you the option of garbage or trash. Tokenization allows fractional ownership of almost everything you do. Think of Apple as a DAO. The users who invest and supply money to them would have more say than a boardroom of 8 individuals looking out for THEIR best interest and not always the users of the products themselves. This is a self correcting system, because if the users of Apple make poor enough decisions, the company will fail.
Now, as a previous business owner and COO, I’m not saying the individuals grinding the day to day work shouldn’t have more say than just the person who owns an iPhone, but with tokenized shares, this would be displayed accordingly in a DAO model.
– What is the right balance between decentralization and centralization in the crypto industry for you?
– For me a good mix would be some sort of Zero Knowledge proof verification (KYC) of users alongside a truly free market of decentralized apps. I’m a realist when it comes to things like this. Tyrannical governments never win, and anarchy has never won.
Freedom of choice is an essential pillar to capital markets, but we don’t currently have that. We have socialism for the wealthy while those mistakes are handed down to the common investor. When Wall Street makes billions of poor decisions, they don’t feel the blowback the way the taxpayer does. I would argue that even some anarchists aren’t as upset with KYC as they are with the mishandling of data and information. It’s the fact that we as citizens are left in the dark as to what the NSA does with our information, phone calls, identity, etc. It’s this model of just trusting that big brother has our best interest in mind that the younger generation is starting to see through. I’m sure every person reading this article has somehow mysteriously seen an ad for something they didn’t even say out loud, the algorithms have gotten that good lol. They know so much information about us that they can literally predict our next moves and the things we may “need”.
– From a point of a former DEX COO, how would you describe DEXes’ influence towards the crypto market?
– DEX’s are the lifeblood of the crypto market. It’s the free market in action. The AMM model allows market makers to be replaced by smart contracts and rewards the users for participating. The freedom of a user to tokenize anything and pair it with another asset also comes with responsibilities. I don’t necessarily mind a bit of centralization when it comes to decision-making on the listing of tokens if such a token has potential to rug the users of that platform. I always tell people that this is not only the Wild West, but it’s big boy stuff. If you choose to trade an asset like that, you also need to understand you’re taking on all that risk. Until there are better systems in place for approval of tokens like that, we will still need to have a bit of centralized oversight.
DEX’s also allow projects who are good actors to advertise what they have created and allow users to make the decision to purchase those tokens or not.
Imagine for a second that Citi Bank was a DAO. Every time a new loan was written, everytime they earned the overnight rate for holding funds, users would earn a larger portion than the peanuts they’re currently given. I truly believe that citizens could stomach a billionaire class a lot easier if an average person wasn’t struggling to make ends meet.
This is how out of touch some of these corporations have become, the greed has blinded them so much that this system will eventually come full circle and the “consumer” base they relied on, will be their demise once consumers either find alternatives or simply do not have the buying power to keep their system going. To me, this is what Web3 will bring, it will democratize the markets again, it will show people an alternative and much like the Internet forced companies to adapt, this technology will do the same.
– Which difficulties are faced when launching and operating a DEX?
– I think exposure and generating interest into something that users are unfamiliar with in a niche market can be one of the biggest hurdles in launching a DEX. There are the obvious things like having enough liquidity in your pairs for users to have the best experience possible on your platform, but I think the growth part is the most difficult.
You’re in a sea of hyper competitive platforms in a niche, unregulated market – good luck getting more than 15% of the world’s population to adopt something like that. Your developers are constantly flooded with new updates, V1, V2, V3 releases. Sometimes you’re creating a product, for which the update is released while you’re finishing up the latest “groundbreaking” product, and the entire thing needs to be restructured.
Final answer: growth, adoption, and technology that is rapidly updating.
– Will DEXes like Uniswap or Whiteswap ever dominate over centralized exchanges (CEXs)? Which steps should be taken to achieve an advantage?
– My honest opinion? No.
The reason is simple: 40-60% of the population simply does not care to take the time to invest in these products. Do I think the users of DeFi will continue to grow? Absolutely, yes, but there’s something about the ease of use with something like Coinbase that DeFi will never have. This is by design as well: I don’t think DeFi and DEXs should aim to be CEXs because these are two different products and markets. One focuses on ease of use for beginners, and the other is a sea of degens who are very passionate about finance and creating things that, hopefully, one day society benefits from.
To me, this question will always be something along the lines of “Do you think fast food will take over gourmet chefs?”, and we all know the answer to that. Chefs create things that fast food replicates in a more easy way to consume. I’m not saying Coinbase is a cheap fast food, but it’s the ease of access I’m referring to in this example – in which a chef is going to take his time to craft a masterpiece and know the ins and outs of the entire kitchen, and the consumer, who knows the elegance of the dish prepared, will appreciate that, while someone like me with a normal pallet will probably just say, “That was a juicy burger, but I know a spot down the street where I can get it cheaper and quicker”.
I may give up some quality for ease of access. There’s an old saying that goes, “Time, price, and quality – you can only pick two”. If you want it done quick and cheap, you’ll sacrifice quality. If you want it done fast with high quality, you’ll pay a lot more. If you want it inexpensive, but with good quality, you may have to wait a year to receive it.
Part of the human experience is compromise. I do hope the regulators will do a better job of consulting with the good builders in this space prior to enforcing with an iron fist, because I do have a dystopian view of how this can go with biometrics and total government control with programmable money. The outlook is very bleak down that path, but I think, as always, humanity will prevail regardless of how long it takes.
Freedom has always found a way, and this technology has so many untapped potentials that we must continue pushing forward and being involved to avoid that dystopian future.
Paul Osadchuk
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