DeFi addresses obstacles to reach parity with centralized finance

DeFi addresses obstacles to reach parity with centralized finance

In this new edition of the Horizons newsletter, we argue that DeFi has to overcome significant obstacles to fully live up to its potential and discuss the need for transparent supply chains.

DeFi is addressing its obstacles

With more than $80 billion locked in an ever increasing range of protocols, Decentralized Finance (DeFi) has proven that it is possible to create and offer decentralized financial products. Nevertheless, it has to overcome significant obstacles before it can demonstrate to be a viable addition and even alternative to the current, centralized financial system, as the recent meltdown in the digital-asset world illustrates. Before DeFi can fulfill its promise of an open, permissionless financial system accessible by all, three additional requirements will have to be met. The first is that DeFi needs a sufficiently stable and scalable infrastructure. Current blockchains suffer from limitations in transaction throughput and scalability. With stablecoins, the volatility issue could be solved, but these assets are not without controversy. Second, the UX of DeFi applications needs to improve to be as user-friendly as regular banking and fintech applications. Third and last, regulations should be implemented to tackle uncertainty concerning investor protections, market integrity, fraud and financial stability. Only when these problems are addressed, DeFi will be able to mature and fully live up to its potential.

Broaden Your Horizons

  • With more and more work taking place in the virtual workplace, a FT article argues that legal frameworks (such as employee protections) for the digital realm should be developed.
  • With all that we have learned about remote learning during the pandemic, we believe that it will be an indispensable feature of the smart home. Want to know more? Read our most recent post on the VanEck Smart Home ETF blog.
  • As the average American sleeps two hours less than their great grandparents did, investments in so-called sleep-tech are increasing. This Economist article discusses the ins and outs of sleep-tech.

Transparent supply chains

Companies regularly come under public attack when scandals about production abroad come out. A recent example is the destruction of the Amazon rainforest by the Brazilian meat industry, meat that is offered by western supermarkets. To prevent such issues, global supply chains should become fully transparent. It must be clear what every link contributes to the chain and companies should take responsibility for the social and ecological costs of production and consumption (‘the polluter pays’). Eventually this could enable companies to pass on these costs to the end user according to the concept of ‘true pricing’. Last week, the European Commission took a first step in this direction. The EC presented a proposal to make companies responsible for human rights and environmental violations in their value chains, risking sanctions if they do not. These developments are also in line with consumers increasingly demanding the right to obtain more information about the origin of products. As companies such as Wallmart and Carrefour show, the use of blockchain technology seems to be the most appropriate method to achieve this transparency.

 

Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, sign up here.

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