Opinion: Why DeFi won't integrate into CeFi soon?
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Crypto Valley Live (ID: cryptovalley)
, Author: Omkar Shanbhag, translation: Li Hanbo, reproduced by Odaily with authorization.
The decentralized finance (DeFi) market is likely to boom this year, but they are still tiny compared to the centralized bigwigs.
It seems like a new protocol pops up every day, all aimed at attracting liquidity providers and making it the next big thing in DeFi through token incentives or surging collateral lockups.
It was a similar situation a few years ago with cryptocurrencies themselves, when buying and selling bitcoin required a certain level of technical knowledge. Then came companies like Coinbase, which made things easier for the masses, but at a price.
There is no such one-click solution for DeFi yet. And that could hinder its adoption."secondary title"When DeFi enters CeFi?"In the latest Bankless newsletter, crypto investor and Ethereum advocate Ryan Sean Adams dives into what could be holding back DeFi. he mentioned a"protocol sinking
theory, which predicts that eventually, crypto banks will integrate DeFi and protocols will become
"economically intensive"
, eventually sinking to the bottom of the cryptocurrency stack.
A few examples of this include Coinbase’s interest issuance on Dai, and OKEx backing the Dai Savings Rate (DSR) in late 2019 (still at zero). Adams firmly believes that DeFi will eventually establish corresponding rules.
"The Protocol Exchange paper predicts that DeFi will become the base layer of crypto banking. This is a necessary step before it becomes the base layer of a traditional bank."
But not so fast...
Calvin Liu, head of strategy at Compound Labs, shared his experience by showing his father how to use Compound with DeFi. Just starting to earn interest on a stablecoin through the platform requires 11 steps, each one complex, as evidenced by Mr. Liu.
"DeFi is complex, too difficult to use, and it needs massive UX improvements before it can cross the chasm and become mainstream and retail use."
This should be scary for large centralized exchanges. But they trade huge volumes, are managed by the smartest minds in the world, and are perfectly capable of integrating DeFi protocols.
Complexity
At present, none of the major crypto exchanges has made any efforts to integrate DeFi protocols as a way to retain customers of the exchanges. Mr. Liu has taken the time to talk to various exchanges, and there are several factors as to why this integration has not materialized.
secondary title
Complexity
"First, DeFi smart contracts are complex, far beyond the mechanisms used on the current generation of crypto exchange trading platforms. Crypto exchanges also don’t like decentralized custody because they want to hold cryptocurrencies themselves."
Most exchanges do not have the technical capabilities to defend against attacks and patch smart contract vulnerabilities. This year's DeFi boom is also like Christmas every day for hackers looking for vulnerabilities.
Synthetix founder Kain Warwick acknowledged as much in an unrelated commentary on the ICO.
DeFi is early and dangerous. We have all kinds of risks: hackers, bugs, fraud, centralization, manipulation, foreground running away, etc., the list goes on.
Liu added that upgrading existing infrastructure to integrate DeFi would create a lot of friction for centralized exchanges that only hold large amounts of currency in a few secure wallets. There is also little incentive to take risks outside of the core business model, which clearly works for the major exchanges.
"He added that major exchanges are also risk-averse and largely unwilling to venture into new territories. DeFi also involves legal and regulatory issues. Exchanges have been vying to operate under some form of regulatory umbrella for the past few years."
DeFi is still wild west in this regard, with almost no KYC requirements for most protocols. Liu concluded that exchanges need to innovate to keep pace with the rapid changes in the industry, which will include the integration of DeFi.
Crypto is an exponentially growing industry, and if an exchange is to keep up, its business needs to innovate at an exponential rate too. In the crypto industry, it's too early to follow 'best practices' - you have to invent them.
secondary title
Aave Launches DeFi Dashboard"According to an announcement, the new platform offers a smooth user interface for portfolio management. It added that the goal is to make the entire process more efficient by including overall portfolio statistics, details of all supplied and borrowed funds, and an overview of all backed assets and their current market statistics."and"Also included are some named"promote
and
"repay"
A feature that allows users to increase leverage and unwind positions by using the provided funds to pay down debt. Additionally, a smart wallet was developed to hold the entire portfolio, which is not a standard smart wallet, as a standard wallet can only have one smart contract interaction per transaction.
