# DeFi integrated Balance sheet, it overtake CeFi By [Yosui](https://paragraph.com/@yosui) · 2022-11-13 --- In these days, large exchange caused huge credit problem in crypto industry. Almost in this industry have to brace for impact. How could a credit problem like this one have been avoided? We should stop blaming someone and start next effective idea. Because there is some possibility of taking a large mistake even if person who has a great brain. Satoshi Nakamoto invented Bitcoin as antiteze for traditional finance. We should return that point and discuss about right DeFi and its posibillity. This Article suggest that DeFi integrate Balance sheet and verify their assets and their users assets. It solve some problems finance up to now. This concept don’t conflict traditional finance because this structure can integrate Anti-Money Laundering and Anti-Terrorist Financing. Blockchain and smart contract is function for building good social for each person. \*Concept of this article inspired by structure of [Umi](https://twitter.com/umi_protocol). What if DeFi could be having more efficiency? ============================================= Almost DeFi(not Ce-DeFi) have transparency because they don’t have their own assets. DeFi provide swap/lend/pool functions for their users and get treasury by selling their governance token, earning swap fee from users and some grants. But DeFi has architectural issue as liquidity. For example, Bank that is deposited money from people can manage its assets. Sometimes they make mistakes, but history has taught them and they are making them less often. The difference between DeFi and CeFi is that they don’t have a way to identify customer funds and protocol funds (treasury). ![Difference between CeFi and DeFi](https://storage.googleapis.com/papyrus_images/2309b363ba6a5ee261c5670bd33c4148ffdb34e93b9ce9db86dd054657a7bfff.png) Difference between CeFi and DeFi Opacity of DeFi is not structural it’s only difficult for clearing its financial strength because transactions on DeFi are complex even if DeFi user. By decreasing complex in DeFi, people can understand truly excellence for DeFi. Both of core team and liquidity provider don’t get the picture of protocol financial strength. Transparency of protocol financial strength let stakeholder give more usability and safety. Classification on DeFi balance sheet ------------------------------------ Then, how do we classify assets on DeFi? We can learn from our predecessors. In 14-15c, Balance sheet was invented in Italy by Italian merchants to make their own business easier to understand. Goethe called it "one of the most useful inventions." In 2020-2022, some protocols boasted of their TVL on Twitter. Increasing TVL is attracting crypto users but TVL isn’t surely evaluation. As recent days have shown, TVL is only one of indicators and the core team can pump it easily. The huge numbers displayed are exciting to all involved, but we need to escape this myth. ### Assets Assets is already indicated treasury as wallet address or contract address. The good thing about Crypto is that it is reflected in DeFi, and it is easy to prove where and how much money is "currently" available. ![DeFi balance sheet](https://storage.googleapis.com/papyrus_images/dc1ba298d69ecd7c599854edb06ff34b44c4b9b6c9addbe21d324417ad89c560.png) DeFi balance sheet ### Liliability We have not yet heard of any lending against protocols. However, it is likely that in the future, the CF value derived from protocol revenues will be used as collateral for a loan. Even with protocol-issued tokens, it must be clear whether the initiative is held by the user or by the protocol. It should be clear whether the user has the initiative or the protocol, even for tokens issued by the protocol. For example, Curve finance has effectively fixed liquidity due to the existence of ve-CRV. The quality of the protocols is one thing, but it goes without saying that Curve has a strong presence in this bear market. [https://curve.substack.com/p/jan-10-2022-vc-vs-ve-](https://curve.substack.com/p/jan-10-2022-vc-vs-ve-) Curve is trying to pay a higher interest rate to those who have locked their CRV. This can be considered a liability. Whether the tokens are debt or equity should be considered in terms of the ecosystem of each token's properties. ### Equity Finally, there is Equity. Here you can see the tokens received in the protocol revenue and the amount funded by paying out the tokens. The most secure Equity is that received as protocol fees (retained earnings). It is difficult to calculate the value of tokens once their price has been raised by fundraising, and there are problems with estimating the value of tokens that are illiquid. For a conservative calculation of market capitalization, the amount of funds released to third parties for fundraising should be determined in advance and used as the denominator in the calculation. Otherwise, we will encounter scourges like the FTT in places we don't understand. [https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent](https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent) From here to there ================== As I indicated above, you can see how stupid it is to overstate "TVL" when you think in terms of the balance sheet. DeFi certainly has transparency in every transaction, but the credit risk increases as the Lego blocks are stacked. ![](https://storage.googleapis.com/papyrus_images/0a9eba2db717f7f1087a160b000329c5fa4ca0623a5f91073b4f6437332b9d4f.jpg) We are going to build a blockchain that allows users to manage their own assets and is transparent for them to deposit their assets. Its name is [Slider](https://twitter.com/SliderNetwork), please follow us. --- *Originally published on [Yosui](https://paragraph.com/@yosui/defi-integrated-balance-sheet-it-overtake-cefi)*