The Evolution of Decentralized Lending: How DeFi is Revolutionizing Finance

"Decentralized Lending," an enticing option for the future of DeFi and financial evolution, as well as DeFi's future trends, are among the topics discussed in REDeFiNE TOMORROW 2023 by SCB 10X. Robert Leshner, the founder of Compound, and John Lagman, the APAC Crypto & FX Workflow Specialist & Strategy Lead of Bloomberg, were presented at this event to share their perspectives.

The session included a panel discussion on the future of DeFi that covered "Collateralization”, the "CeFi” movement, "Proof of Reserves”, and the development of cooperation between financial institutions and DeFi.

“Compound Labs” is a platform for building tools and services for the DeFi ecosystem. It was made up to support Compound's protocol and grew into DeFi, which was still a relatively unknown technology. It can provide users with the option to offer crypto assets as collateral when borrowing other crypto assets. It began to include additional blockchain networks a few years ago, with a focus on achieving balance and working with financial institutions and traditional financial systems.

Blockchain collateralization movement

Collateralization is a key aspect of lending in DeFi. Verifying borrowers' credit is essential because the bear market last year had significant fluctuation and a lot of fraud. As an example, Compound is efficient in analyzing assets and collateral, which are simple and common. Liquidity, or the capacity to sell an asset for its current value, should be the main focus.

Leshner predicted that in the future, lending on blockchain will be more convenient because it will not rely on specific assets but only on the borrower's history, reputation, and credit. Prior to getting there, though, we must concentrate on assets with high market value, liquidity, and ease of valuation for use as collateral.

We can draw the conclusion that Leshner explained the Compound's approach, which emphasizes liquidity analysis and the price of the current asset. Additionally, a particular community network called "Gauntlet Networks" is available as a tool to manage protocol risk and examine asset  fluctuation and liquidity.

Impact and movement of the CeFi platform

This issue examines the recent market chaos caused by the collapse of the major CeFi company, which had a significant impact on the industry and the CeFi platform and caused a temporary slowdown in CeFi activities that require cryptocurrency. These events changed people's perspectives on the industry's risks and opportunities. According to Leshner, the risk of opaque centralization was the main reason why this occurred.

Proof of reserves becomes a transparency method that receives more attention

In the past, many CeFi platforms were unable to demonstrate operational transparency, which posed a risk and contributed to the platforms' collapse as a result of theft or fraud.

Showing users the crypto assets and reserved properties that they own, proof of reserves has a strong positive trend that helps increase platform reliability. It matters that the CeFi platform collapse a few years ago has allowed users to observe other CeFi platforms' efforts to exhibit transparency like DeFi.

While the industry is reviewing and evaluating the structures and guidelines to prevent a similar incident from happening in the future, there is a focus on the new risk management strategy used for DeFi and CeFi. The operation procedure that places a greater emphasis on transparency has been regarded as a positive development.

Movement and collaboration with financial institutions

Leshner noticed a shift in the institutions’ perspective on DeFi following the collapse of many CeFi platforms in 2022. They seemed to have grown more worried about CeFi. However, it presents a chance to learn about the DeFi's effectiveness, which prompted the creation of "Compound Treasury”, a product that combines the DeFi protocol with a business model in which institutions can take part to close the trust gap.

Leshner also thought that the future DeFi protocol would be open, robust, and accessible every day for 24 hours, enabling the institutions to offer this service and reducing all the complexity. A single DeFi protocol can offer a superior on-ramp service that allows institutions to support a large number of clients.

Overview of the rules and regulations for crypto lending

A legal overview has been developed and improved over time. Leshner observed the development and positive openness regarding the DeFi invention in the UK and Europe, in contrast to the US, which still does not support cryptocurrencies. He added that local governments, which are tailored to each area and have more progressive ideas than those in the US, provide good support for legal circumstances in Asia.

Conclusion and suggestion for DeFi enthusiasts