Will Global Crisis Kill Off DeFi? Stakeholders’ Perspective

Opinion
28.03.2020

The Black Thursday shook the entire DeFi sector along with the wider crypto-industry. This time, DeFi wasn’t the much-needed salvation, despite its relative successes over the past couple years. Yet, the crisis brought up the significant potential of decentralized finance, when compared to its traditional counterpart.

ForkLog’s Max Bit talked to Leonid Morozovsky, co-founder of UniDAO, and Mikhail Sayfullin, CEO of Enecuum, about the recession, the future of decentralized finance, and an entirely new world waiting for us on the other side of the crisis.

What is going on in the markets and what is the current role of DeFi?

Leonid Morozovsky: The recession has come. SME’s died in about a month. Stock markets crashed worldwide. There are liquidity problems as well since the most demanded asset right now is cash. People sell everything to get cash.

National currencies face devaluation, especially the weaker ones. In situations like this, inflation rates skyrocket, because foreign goods become more expensive. Authorities try to help businesses, increasing the inflation rates as a byproduct. Tax revenues decrease, and people lose the ability to maintain their loans. All this affects banking. The debt will accumulate and probably result in a bailout. That’s the general picture.

Given the troubles with banking, why don’t we give people crypto-wallets and distribute cryptocurrencies instead of national currencies?

Mikhail Sayfullin: This is a double-sided problem. Ther is the question of infrastructure and a question of moving to a certain crypto asset.

In terms of distribution, the money will, first of all, go to stock markets and large businesses. SMEs will get only a fraction of it.

As for moving to crypto, this entire market is still too small and young. The crypto-market and the infrastructure available can’t replace the traditional money.

I’m confident that the DeFi sector is at the very beginning of its journey, despite all the progress already made. MakerDAO developers have been working on their project for 5 years before amassing the userbase and forming a community around their ecosystem. This is just the beginning.

Will DeFi services help those put on lockdown or the sector isn’t ready yet?

Leonid: Indeed, DeFi is a very young market. There are about 20 or 30 thousand active users there. But I think that this market has the potential to overcome the pandemic and create a new model of financial interaction.

First of all, DeFi gives us an entirely digital environment with digital finance. Without piles of paper documents, DeFi makes financial interactions simple.

Another point is global outreach. DeFi services are available worldwide and anyone can deposit a stablecoin and gain interest. Moreover, the interest rates will be higher than with the Treasury and the whole system is transparent.

Next, it is all automated. In DeFi a team of 5–10 people can automate the job of an entire bank or another institution with hundreds of people. During the quarantine period, such traditional institutions have to figure out how to do business remotely, while DeFi projects work remotely by default. Similarly, the users of DeFi services access them remotely without the need for actual offices.

Do we need new DeFi protocols to get things going or the current tech will do?

Mikhail: Given what we’ve seen on March 13th, no, what we have now isn’t enough. The Ethereum protocol underlying most of the DeFi systems isn’t enough. Ethereum developers didn’t expect to have this many users. In terms of architecture, the system wasn’t designed to work under loads this high. Ethereum 2.0 will have an entirely different economy and we don’t know how it plays out.

Creating secure decentralized protocols is a challenging task. Ethereum is an imperfect solution that requires lots of maintenance, albeit it does the job. But it is not enough to satisfy the current demand.

Watch the full Russian-language interview on the ForkLog YouTube channel

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