DeFi ‘should be the foundation’ of every financial product: Compound’s Robert Leshner

In short

  • During the recent Terra crisis and resulting crypto crisis, DeFi continued to move forward without “hiccups,” the Compound co-founder said.
  • This distinction should be key in helping regulators see the value in DeFi, argues Leshner.

There is a way to look at this summer’s crypto liquidity crunch – and the resulting centralized lender bankruptcies and bailouts – as having demonstrated that decentralized finance (DeFi) works as it should.

At least that’s how it is Compound founder Robert Leshner sees it.

“I think the last two months have shown, without a doubt, the benefits that DeFi is creating,” Leshner said. Decrypt at Chainlink SmartCon in New York. “DeFi is expected to be the basis for almost all types of financial markets and products in the future.”

As Bitcoin plummeting, centralized companies like the now-bankrupt Celsius struggled to keep their businesses afloat, the first debts they started paying off were debts incurred in DeFi land.

While many creditors continue to wait to see their funds, in July the lending company Paid the latest of its decentralized loans to MakerDAO. Previously, Celsius had come down the line from Maker, then Aaveas well as Leshner’s own Compound protocol.

And throughout this chaos, none of these platforms suffered a single “hiccup” thanks to smart contracts‘ unstoppable code and visibility.

“Each DeFi protocol, Compound included, has essentially gone through incredibly turbulent times without a hitch,” Leshner said. “They were designed for radical transparency. So everyone knew exactly what assets were in Compound, what the borrowers looked like, how healthy the borrowers were, and all the collateral needed to back those borrowing positions. were already owned by Compound.”

The funds, for example, were not used elsewhere for additional leverage. (If they had been, everyone on Crypto Twitter would have known.)

When it came to transactions from the various centralized platforms, Leshner said, none of that transparency existed, so companies like Celsius and Voyager could take their customers’ funds and do with them as they pleased.

“No one knew what they were doing; unlike a DeFi protocol, they have to run their business as they see fit,” he said. “They were lending aggressively, unsecured, to Three Arrows Capital, or they were trading their clients’ funds, or doing all these crazy things that no one thought their business model was. And these are the problems with CeFi [centralized finance]. And these are the things I think regulators should look and say ‘Wow, if they were DeFi, none of this would have happened.'”

Make everything a stablecoin

During this time, the rapid growth of dollar-pegged blockchain tokens over the past two years has been nothing short of staggering. And that raises a key question: why not put all financial markets on blockchains?

“I think we’re going to start seeing a lot of other stablecoinsboth for foreign currencies like the pound or the yen, but also for different assets,” Leshner said.

So, instead of just vanilla fiat flying around on various blockchains, he argued that we will soon start seeing assets like real estate or government bonds.

And most importantly, it will all look like a stablecoin, just pegged to something else.

“In most use cases and examples, real-world assets, whether it’s real estate, stocks, bonds, or something that’s held off-chain and enters a blockchain , it will look like a stablecoin,” Leshner said. Moreover, these new types of assets will find “a lot of adoption in Challengeover the next decade.

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