While attending this year’s ZoomBall event — Creeping into Crypto (and Fluffy Cats) — AIKON CEO, Marc Blinder uncovered the inner workings of the DeFi ecosystem and its significance for the current financial system.
He also explained how industry regulation can influence cryptocurrency price volatility, the expansion of the DeFi ecosystem, and more.
Managing Price Volatility
“What excites me about DeFi is that power-to-the-people ethos,” he stated, explaining that DeFi is structured in such a way that it allows for middlemen to be completely removed from the equation, thus returning the circulating money back to the participants in the value chain.
“Unlike Coinbase, Kraken, etc., DeFi exchanges rely on their own users to provide liquidity. Put your assets in a liquidity pool and you’ll earn fees that the exchange is charging for the tokens that are being exchanged,” Marc elaborated.
“This is super radical, even more than the idea of decentralized lending. You can earn fees and still own and control your tokens.”
And while people have already realized the possibilities that are opening up in terms of free liquidity management in the decentralized ecosystem, many are still wary because of the (still) high price volatility.
So, what can be done to regulate against pushing crypto prices up and down?
Marc explains that while the current regime should be reasonably protective of investors, what is observable is a jurisdictional problem. With blockchain platforms being inherently global, the vast majority of consumer crypto scams are happening in places with weaker enforcement — giving a bad name to the industry.
Nevertheless, when all is said and done, the innovation is worth the downsides according to Marc. Considering the Titanic-sized failures in the traditional financial systems — from the 2001 downturns to the 2008 mortgage crisis — the wealth of billions of people has been destroyed in the past two decades alone.
Therefore, there is a tangible need for decentralized financial systems based on this new technology stack — blockchain.
“The potential upsides of a completely transparent system, where the rules are written into open-source software that anyone can see, anyone can audit, where any transaction is transparent and revealed to anyone that wants to look at the records — I think that is vastly safer in the long run.
This is the direction we need to move even if there are some teething and growing pains to get there,” Marc concluded.
Will Regulation Help DeFi Expand or Shrink?
As regulatory issues in the DeFi space are resolved one by one, mostly by introducing an appropriate legal framework, one question stands out — will regulations help the industry grow in intensity and frequency or stifle innovation?
Marc is optimistic about the future.
“My honest belief is that DeFi as a whole is going to be safer and safer as we move forward. Having been in the industry since 2017, you see that there are far fewer horrific smart contract problems or hacks today in 2021 than there were four years ago.
The technology gets better, the engineers are more experienced, the code auditors are better at auditing, the tools are more sophisticated at security checking, the penetration testing is better,” he maintained.
From all of this, it is obvious that we’re experiencing a natural march of blockchain technology, one that supports new use cases and solves real-world problems.
How Will Ethereum 2.0 Reflect on the Coin Price?
With Ethereum going to the Proof-of-Stake (PoS) structuring, and Ether’s price steadily rising, HODLers (or potential ones) are wondering about the causality there.
Many in the industry agree that it is, in fact, Eth 2.0 that is driving the price of Ether up, thus making it an increasingly appealing cryptocurrency to invest in.
That is because, as a blockchain, Ethereum is trying to break away from Proof-of-Work’s established reputation of being bad for the environment, and embracing PoS.
More importantly, it will resolve the main issue right now that is slowing down the entire DeFi space — transaction fees. Almost all DeFi projects are Ethereum-based — and the introduction of ETH 2.0 will lead to faster transaction times and drastically lower fees.
“Eth 2.0 is going to be a huge step forward. I don’t know if it’s gonna be enough,” Marc stated on the matter alluding to the complexity of the system and influencing factors.
And sure, for such a complex industry — still in its infancy — things can never be as clear cut as we would have liked.
That is why gatherings like this one are important so the people at the very heart of the matter can offer insights to those willing to enter the scene.