What we call 'DeFi' Today Will Just be Called 'Finance' Tomorrow by@ishanpandey
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1,212 reads

What we call 'DeFi' Today Will Just be Called 'Finance' Tomorrow

by Ishan PandeyOctober 25th, 2021
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Sovryn is a decentralized financial protocol built on Bitcoin, instead of the traditional ETH DeFi model. It allows its users to lend, borrow and leverage their assets natively on Bitcoin without sacrificing custody of their keys. Users have direct say in the governance of the development of the protocol using the Bitocracy system. Edan Yago is one of the earliest contributors to Sovryn and has been involved in Bitcoin since 2011. He believes DeFi will overtake CeFi in terms of wider use and become the dominant system.

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Ishan Pandey: Hi Yago, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Sovryn?

Edan Yago: I am one of the earliest contributors to Sovryn. I have been involved in Bitcoin since 2011 and have created several startups in the Bitcoin space. Before that, I was a neuroscientist focused on applications of machine learning.

Sovryn is a decentralized financial protocol built on Bitcoin instead of the traditional ETH DeFi model. It allows its users to lend, borrow and leverage their assets natively on Bitcoin without sacrificing custody of their keys while having a direct say in the governance of the development of the protocol using the Bitocracy system. Sovryn is a reaction to the global crisis of last year.

Our countries have failed us - we need to build new appropriate institutions for a global, digital age. That is what Sovryn is building, first for finance, then for everything else.

Ishan Pandey: Do you think DeFi will overtake CeFi?

Edan Yago: Yes, it will. What I mean by that is not that centralized services will disappear. Rather, we now have an open financial system that is borderless and far more interoperable than the conventional financial system. Centralized services will plug into the DeFi system and become access or service providers to it.

What we call “DeFi” today, we will just call finance tomorrow, since it will become the dominant system.

In such a world, centralized financial entities will provide services to people who do not have the time or the desire to manage all their assets. However, DeFi will offer the choice for personal financial freedoms to individuals.

Those who wish to will be able to manage any aspect of their financial lives themselves. With approximately 2 billion unbanked people having no access to financial services, the market is already very large - there is an opportunity to give much of the world their first-ever access to reliable financial tools.

With the evident generational shift in trends like content consumption, online ordering, live-chat customer services - younger people demand instant gratification across industries.

Time is becoming a valuable commodity, and Centralized services up til now have been moving far too slowly to adapt to these demands. This is where I think DeFi will really thrive. Will it overtake CeFi in terms of wider use?

I believe it will, and it would mean that people around the world are taking their lives and their finances very seriously - a net positive all around.

Ishan Pandey: What are your views on NFT gaming and its future?

Edan Yago: I think the crypto-gaming scene, NFTs, metaverses, and identities are super important. More and more of our lives are spent in virtual worlds. This Interview is virtual, social media is digital, shopping, finance, education - all digital.

As a species, we are spending increasing amounts of time in these digital environments, and most people don’t earn money from it - yet. People are already playing games like EVE Online and are grinding day in, day out as if it were their day job. Many are earning at the moment, but the spaces have so far been like the Soviet Union, they are completely controlled, and you can’t move the money out.

With the recent advancement of digital property rights, brought forward by smart contracts and NFTs, we have seen a new generation of games come out where people can actually go and earn money in a game world, which they can spend anywhere. I predict that we will start to see a larger population begin to ‘work’ in these virtual worlds to generate their primary income.

Ishan Pandey: Should DeFi be regulated? Further, what is your view on SEC stopping the Coinbase lending program?

Edan Yago: DeFi is regulated. DeFi is a system of smart contracts. The term “contracts” here is key. These are basically programmatic rule sets. So the entire system can be understood as a system of rules or regulations for dealing with assets and property.

This, of course, is very different from the way we currently think of regulation - with a whole paper-based system of rules, regulators and courts. That system is, by comparison, extremely slow and inefficient. National borders also limit it. DeFi systems are global financial systems that make sense in a globalized world.

The local regulators are being made obsolete by this technology. They cannot regulate Bitcoin. They can only regulate the centralized entities that operate with Bitcoin within their boundaries. Can they regulate DeFi? If these systems are truly decentralized, then they exist outside of the borders of any nation. This is an entirely new paradigm of what jurisdiction and regulation mean.

DeFi is self-regulating, but right now, it is doing so in a fairly immature way. I think we should expect to see the level of self-regulation and sophistication increase dramatically over time.

If it’s truly decentralized, then it can’t be regulated. Can you regulate Bitcoin? You can arrest the devs and some public figures, but the protocol won’t stop running; the same goes for Sovryn. A truly decentralized project can’t be stopped nor regulated. Coinbase is a centralized company with legal liabilities. The SEC will always be able to tell them what to do. I believe Coinbase will get its banking license and will return to the lending program in the future.

Ishan Pandey: What are your thoughts about DeFi in the Bitcoin ecosystem?

Edan Yago: Right now, DeFi is a vast and chaotic space. Without a clear market leader, liquidity is fractured among an increasingly large number of small ecosystems, each with its own tokens, pegs, and funding sources.

Having many different chains and applications in the current DeFi space results in high friction for users. To move funds from lending on one application to margin trading on another, people may have to bridge funds multiple times and incur high fees in the process - an unnecessary step that limits further growth.

If the DeFi space had an incorruptible and secure base asset, like Bitcoin, there would not be a need for 20 different platforms and 200 different sidechains. The DeFi space could achieve its true goal of mass adoption to fix the outdated banking financial system.

Sovryn offers borrowing, lending, margin trading, and NFTs, all on a Bitcoin side-chain, merge-mined by Bitcoin miners, with bitcoin as the base asset. To me, it is the logical next step for what is emerging as the first global financial system.

Ishan Pandey: DeFi’s emergence has been considered by regulators as posing a risk to the traditional financial system. However, a substantial number of participants deemed DeFi participation to offer better risk-adjusted benefits than typical banking or investment services. What are your views on this supposition?

Edan Yago: DeFi offers outsized returns, in part because it is high risk. That said, DeFi is still new, and over time will become far less risky than our legacy financial system.

Existing banks are hardly a paragon of security: any cursory Google search will reveal a galling amount of stolen money laundered in places like Macau.

Our current financial system is riddled with risk. If you look at the track record of banks’ over the last century and subtract the money they’ve needed in government bailouts from their profits, banks are net negative. This is why Bitcoin was invented. It is why DeFi exists.

Ishan Pandey: Do you believe the crypto sector must forsake decentralization in order to build a robust security system? In your opinion, what measures, if adopted, can assist in promoting a blockchain narrative that includes both security and decentralization?

Edan Yago: It’s not about decentralization - which is a tool - not a goal. Decentralization is valuable because it creates a system of rules without rulers. What we need is a global financial system, with clear incorruptible rules. What we have right now are many national systems that cannot create truly global rules. As a result, there is a great deal of risk and corruption that is completely unaddressed.

Part of the reason I am interested in Sovryn is due to its mission to create a global, rules-based financial operating system. That is a different approach from the current DeFi ecosystem, which is a free-for-all.

That is fine for casino-like ponzinomics, but it won’t cut it for true financial activity at scale. Sovryn is a different kind of DeFi ecosystem because it has global rules for all players in the system. In other words, in the same way, that Bitcoin is a global monetary regime, we aim to be a global financial regime.

This won’t be enforced by laws and force. Instead, it will need to attract users and activity by building the most minimal, effective, and useful rules that create the best environment for trade and transactions.

Ishan Pandey: As someone who has been in the crypto industry for quite a while now, what will be your advice to beginners and inexperienced crypto holders who want to start storing coins securely and partake in the crypto industry?

Edan Yago: Be an investor. Not a speculator. If you want to preserve wealth and secure your future, have a substantial amount of your allocations in something that is secure, stable, and well known, like Bitcoin.

You can still play at the casino if you like. But don’t speculate with the money you want to be secure and profitable over time. DeFi can offer great returns that compound year after year. It’s up to you to understand the risks you are taking, and if you don’t, to take less risk.

Ishan Pandey: China recently intensified its stance on cryptocurrencies by imposing a blanket ban on all crypto transactions and mining, putting immense pressure on bitcoin and other prominent coins as well as crypto and blockchain-related companies. What will be the global implication of this nationwide ban?

Edan Yago: We are witnessing the “then they fight you” stage happening in some countries around the globe.

China didn’t ban Bitcoin. China banned itself from Bitcoin.

One of the most beautiful things about Bitcoin is the game theory behind it. While China is banning (or at least they say they do), El Salvador has made Bitcoin a legal tender. Now the clock is ticking. Every country has to think about whether she sees bitcoin and open finance as a threat to its own existence or a promise for its citizens' better future.

We live in a global, digital world that does not respect borders. Because of crypto, this doesn’t mean we won’t live in a rules-based world - just the opposite: we will live in a world where everyone, including those who are currently cut out of the global economy, has access to property rights and free trade. States and people that embrace globalization will benefit from the prosperity and freedom it creates. Those who try to halt progress will fall behind.

Countries can’t ban Bitcoin, but Bitcoin will ban corrupt countries.

Ishan Pandey: In what ways do you think Covid-19 has affected decentralized finance, and what has been the overall impact of the pandemic on global finance?

Bitcoin was a response to the global crisis of 2008. DeFi and Sovryn are a response to the global crisis of 2020. Covid-19 has completely changed our daily routine. People were unhappy with the situation created by their inept governments, so they migrated - into the metaverse.

First, the lockdowns and then gradually the implementation of work-from-home policy in most of the workplaces worldwide. So people spend a lot more time at home, all while having much easier access to finance knowledge and financial products than ever before.

We can see a tremendous rise in the usage of financial apps and services like Robinhood, TD Ameritrade, and more. This trend hasn’t skipped on DeFi. The stats are very clear about it. Since March 2019, the Total Value Locked has grown by 2000%.

Trust in governments is at an all-time low. The borders they tried to enforce were proven powerless to protect people from a global threat.

This crisis is going to have a lasting effect - and that effect will be that states are going to lose prominence, and digital alternatives will fill the void. What comes next will be the rise of borderless jurisdictions, enforced by crypto and accessible to everyone. This will impact finance first, but it goes far.

Further, it will impact everything. Our current system is a relic of the industrial age—time for something new.

Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions.

The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company.