In the ever-evolving world of decentralized finance (DeFi), opinions differ widely. Changpeng Zhao, CEO of Binance, predicts a future where DeFi surpasses centralized finance (CeFi), but the Bank for International Settlements (BIS) provides a counterpoint, arguing that a pure form of DeFi is untenable and has limited real-world application.
Zhao’s anticipation of DeFi’s growth is fueled by his belief in the potential of decentralization. In a recent live session, Zhao reiterated that he sees an increasingly decentralized industry as beneficial, indicating that it wouldn’t be far-fetched for DeFi to soon eclipse CeFi trading volumes.
On the other hand, the BIS’s outlook on DeFi is less optimistic. They argue that the requirement for an oracle, a third-party provider of real-world data to a DeFi protocol, is a significant obstacle. By nature, oracles are centralized, and their presence contradicts the goal for full decentralization tantamount to trustlessness. BIS authors believe this is a likely insurmountable hurdle for DeFi and real-world assets.
At the same time, regulatory agencies have started focusing their attention on DeFi, as seen in the U.S. Commodity Futures Trading Commissions (CFTC) investigations into protocols Opyn, ZeroEx and Deridex. They are accused of failing to register various derivatives trading offerings, which raises questions around the future regulatory landscape for DeFi.
Meanwhile, the Shiba Inu ecosystem’s Shibarium, a layer-2 network, has over a million wallets but devoid of any significant impact on the token’s price. And despite cyber incidents at Binance, leading to user reimbursement, Zhao’s enthusiasm for DeFi doesn’t waver.
Looking at the issue from a wider lens, the important question isn’t whether DeFi can replace CeFi overnight. Instead, the focus should be on how these two financial models can coexist, combine, and complement each other to foster a financial ecosystem that benefits everyone.
As DeFi and CeFi continue to evolve, it will be essential for regulators, investors, and companies to strike a balance. This means embracing the opportunities provided by DeFi, without discarding the essential roles that centralization plays in financial markets – such as ensuring compliance, standardizing processes and maintaining order. However, it’s a long ride.
Source: Cointelegraph
