DeFi applications will go mainstream by 2022, assuming regulatory guidance is clear. DeFi modernizes financial system architectures, and brings innovative financial products to those who can’t access them today. See Gartner Research What you Need to Know about Blockchain DeFi
It turns out decentralized weather insurance, offered by Arbol working with Chainlink, is already commercially available. See Businesses and Farmers can now Hedge Weather Risk through Arbol and Chainlink
This offering validates a hypothetical example we used was of an unbanked farmer who could purchase DeFi drought insurance for a specific crop, and have the policy pay out automatically based on trusted rainfall data feeds. See Figure 1 below and Will Blockchain DeFi Go Mainstream? This scenario is not possible in traditional finance today — The unbanked farmer only wants to insure his own small portion of a large crop area owned by multiple farmers, and wants the insurance to kick in based on automated trusted rainfall feeds in his particular geography, rather than based on manual costly audits.
DeFi applications still come with plenty of risk, including smart contract code vulnerabilities, but many of these can be mitigated by buying decentralized smart contract insurance. There’s also the lurking matter of unregulated activities that should potentially be regulated, especially since not all DeFi activities and products are decentralized, as pointed out in our research.
Regulators and law enforcement agencies are taking closer looks at cryptocurrency markets and could circle in on DeFi markets next. In fact, crypto traders were roiled today as CFTC and DOJ charged Bitmex executives with operating an unregistered trading platform, and violating multiple CFTC regulations and the Bank Secrecy Act. BitMEX is a large cryptocurrency derivatives platform with billions of dollars’ worth of trading each day. See CFTC Press Release and DoJ Press Release
The Road Ahead to Mainstream Adoption
Aside from regulatory clarity, key to future mainstream blockchain success is widespread availability of dApps (decentralized applications) that talk to smart contracts that work on multiple blockchains. Users don’t want to have to pick the winning blockchain platform, nor should they. Users want and need off the shelf applications that run where their customers and business partners are.
Chainlink’s decentralized oracle system can be used to interface with smart contracts on numerous blockchains, so that users don’t have to choose which backend blockchain protocol to work with. Settlemint also provides this type of interoperability with its low code development environment, smart contract templates, and multi-cloud multi-chain platform.
We expect many more such solutions to emerge over the next couple of years, because without them, users will have to rewrite their dApp and Smart Contract code for each blockchain they want to interoperate with. That just isn’t a good future value proposition and is a big obstacle to successful adoption.
DeFi provides the first good of example of plentiful composable blockchain dApps downloadable from a marketplace. (For example check out DeFi Prime for a list of readily available DeFi apps). But more is needed. Once we have off-the-shelf applications, low code development environments, blockchain portability, bug-resistant if not bug-free smart contracts, scalable and secure blockchain networks, AND regulatory clarity, sound business use cases will be much more easily developed and implemented. DeFi will play a major role in paving this road.