For many of us, blockchain technology is the future- that much is clear. But what form will that future take?
Some of us may expect DeFi protocols to replace banks, and many of us probably feel that cryptocurrencies will render fiat currencies useless.
But how do we get there?
During a panel discussion hosted at WikiFinance Expo 2023 at Singapore’s Marina Bay Sands, Cake Group CTO U-Zyn Chua expressed his views on the future of finance- and how exactly blockchain technology will live up to its potential.
Understanding the potential of blockchain
To realise the potential of blockchain, we must first understand why blockchain tech represents an improvement in the world of finance.
And on this topic, several panellists expressed that part of what makes blockchain uniquely suited to the demands of financial institutions today was the immutability of the blockchain and the ability to easily trace funds and fulfil anti-money laundering obligations.
As one panellist put it, “with fiat currency, we can identify that you have the money- but we can’t always be sure where you got the money”.
The logical implication of this point is that because cryptocurrencies are based on an immutable blockchain, not only is the tracking of stolen funds made easier, but sources of all funds can be verified without needing to trust that the customer is being truthful.
U-Zyn, however, takes this a step further. While he agrees that blockchain and cryptocurrencies do have this potential, he is sceptical of the claim that all blockchains are immutable and trustless.
“The truth is that most of the smaller blockchains are really not immutable- it’s just a matter of cost. If you can get enough tokens or computing power, you can take over the blockchain.
But when we are discussing blockchains like Bitcoin or Ethereum, the scale with which these blockchains operate makes such an action infeasible, and this is what makes them immutable and trustless.”
And the reason why changing these blockchains is infeasible? Because of the cryptocurrencies that run on these chains. Given how highly sought these cryptocurrencies are, miners everywhere are putting in computing power to mine these cryptocurrencies, and therefore making it difficult for hackers or malicious actors to gain control.
Crypto, therefore, is not merely an application of blockchain, but an integral part of blockchain’s security.
An end to inflation funded-growth
That being said, U-Zyn also cautions that DeFi protocols and investors should take a closer look at what they are actually doing when they invest their funds in a protocol- especially when protocols are promising ridiculously high returns on tokens.
“But alot of that growth is inflation funded- creating more and more tokens without creating additional value really just means devaluing the value of each additional token. So we should really be asking questions about the value that is being generated by the loans, and if the rates are really reflective of the demand for the tokens.”
As such, U-Zyn feels that interest rates on DeFi platforms nowadays are more reasonable.
“They are more connected to real world value, and that is where activity-fi comes from. And I think that’s fair because that is what real interest rates today really are.
Think about it this way- you can choose to lend money to a bank or lend money to a DeFi protocol. Some people will prefer one or the other, but ultimately its the same thing. So rates should be around the same. So I don’t see the high yield values as something that will come back, at least not in an ecosystem that grows in a healthy, sustainable way.”
For U-Zyn, crypto is the future- but clearly, not every future is the same, and how we get there also relies upon how we continue to build up the crypto ecosystem. And building up that system also relies upon taming its wildest aspects while also identifying the real life use cases of blockchain technology and cryptocurrency. As U-Zyn said, “it's all about utility, utility, utility”.
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