DeFi’s novelty caused the crypto-world to become obsessed with its rapid expansion and innovations. DeFi Summer was a thing for some time.
However, with the current macroeconomic situation and regulatory enthusiasm things have changed. The DeFi summer has long since passed.
Rob Leshner from Compound Labs responded to a query about the potential for a return of glory on an episode of Empire’s podcast.
Leshner started by giving a brief background of the current situation: “One of the really big trends that’s happened over the last year is interest rates and trad-fi have eclipsed interest rates and DeFi. One of the symptoms of that is banks like SVB blowing up that just took too much interest risk.”
“The other, Leshner said, “DeFi’s interest rate is not as high as it used to be.”
As of now, it’s easier to just grab Treasury Bills as opposed to grabbing DeFi interest rates, he explained. On top of that, recent issues have caused extremely skittish behavior whereby investors are less trusting of any counterparty, even the most credible, he said.
Return of the DeFi
But Leshner said he expects that the benefits of DeFi will pull people back. DeFi stands in contrast to the opacity of the traditional system, he argues, with its virtues having risen to the surface during recent economic calamity. Past disasters in the space, like the FTX fiasco, caused a loss of trust that pointed users toward the ideals of self-custody and transparency, he explained.
“Validate it by yourself or take the word of others. It’s incredibly powerful to not have to worry about being lied.”
Automation is another important feature that gives DeFi massive advantages over CeFi, Leshner claimed. “DeFi is a 24/7 self-managed system that does not require any real management or maintenance.”
“Comparing that with a CeFi something. On the whole, autonomous smart contract implementations will prove to be more effective than current methods of financial market and product development.”
“It is fantastic to be your own bank” Zaki Manian, Sommelier co-founder says. “This means that people do not need to place their trust in opaque and centralized institutions.” but he said it’s a non-starter for now, “As people must take on complex and demanding tasks to be their own bank.”
This can be solved by automation
Automation is the answer to this issue.” Manian suggested. It allows users to enjoy “Market-adaptive strategy can provide a non-custodial and transparent DeFi, while offloading the complexity of managing portfolios, earning yields, etc.”
Automation also enables yield generation on stablecoins “This is comparable to what you could get from Treasury bonds or real financial activities with cryptonative assets.”
“This type of yield is essential to attracting investors into the space.” Manian insisted, “Beyond the more speculative type that makes up most of current liquidity.”
“There are still some improvements to be made.” Manian admitted. “Two key hurdles that we’re currently in the process of overcoming are the user experience gap – too much of DeFi is incomprehensible to non-crypto natives – and a gap in the kinds of products offered relative to traditional finance.”
“The people want easy-to use, powerful products.”
The autonomous aspect of the product is an enormous magnet over time for both developers and market.” The amount of effort that goes into maintaining legacy markets from reconciliation to accounting and so forth is horrendous in comparison, says Leshner.
The final factor that will pull people back to DeFi is its composability, Leshner added. Advances in one area of DeFi benefit the entire ecosystem due to the system’s interoperability. “DeFi’s own balance allows you to benefit from improvements in different platforms at the same time.” It’s a powerful feature that acts as a sort of hidden tailwind, developing a network effect that continuously improves.
People will come back to DeFi in full force, Leshner believes. “It is a very powerful tool.” he says, that eventually DeFi is going to win. “The recent tragedy has only strengthened that belief and I am more optimistic than ever.”
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