DeFi Decoded — Now and the Future

Decentralized Finance, or DeFi, has quickly gained popularity in recent memory. But with any new technologies and systems, an unprecedented set of challenges will inevitably follow. 

At the annual DeFi Conference 2021 on Aug. 5, 2021, Bybit’s Head of Financial Products Bill Xing and Head of Research and Development Shane Ai shared their thoughts in two separate panel discussions on where DeFi stands today and where the future will likely lead us. 

If you missed their live sessions yesterday, not to fret — watch the full session here.

Here’s what was discussed.

A DAO-unting Task? 

When DeFi is mentioned, it is hard not to bring up decentralized autonomous organizations (DAOs), a model of governance that essentially relies on a shared control of power among organization members. 

Bill, together with Aragon’s Head of Governance Daniel Ospina and Joshua Scigala, co-founder of, discussed the various challenges faced in decentralized projects during a panel discussion moderated by Alexis Johnson, President of Light Node Media.

One of the biggest challenges is encouraging more people to participate in discussions revolving around DAOs, let alone to make any decisions, said Bill.

“That’s the first barrier, that is, how to communicate information to a broader audience, so they understand how the DAO works,” he said. 

Chiming in, Joshua agreed that voter apathy is “a real big problem across the board”. Noting that voting is usually inefficient, he suggested that instead of purely encouraging participants in the DAO to vote based on their own dogmas or beliefs, a more efficient way could be to incentivize participants to vote the same way they would make a prediction or a bet. 

To enable DAOs to make decisions without voting, Aragon has been toying with the idea of developing technology that would allow anyone to program an action in the blockchain, and unless it gets disputed or challenged, it would succeed.

“And if you use this kind of small-scale decisions, making small decisions that aggregate, you can end up with something that is, well, in a way resembles more traditional governance in an organization,” said Daniel. 

Having a better user experience and communication of information throughout the DAO would also make a big difference to increasing the level of participation of users within the organization, said Bill. 

To that, Daniel noted that it is something Aragon is working on improving. While blockchain at the start was for developers, the next wave will see blockchain being used by non-developers and the technology will need to be designed to be intuitive to use.

“I think the industry, as a whole, is starting to make a bit of the shift, but we definitely have a lot of work to do there,” he added. 

Is DeFi Becoming Just Like TradFi?

From the days of Compound’s liquidity mining to yield mining on Curve, crypto earnings from DeFi have come quite a long way, said Shane in the second panel discussion that Bybit took part in, on maximizing crypto earnings with DeFi.

The rise of DeFi since 2020 is undeniable — DeFi’s total value locked hit a new high of $89.53 billion in the middle of May 2021 and is currently at $73.18 billion.

How can DeFi proponents maximize their crypto earnings in the current climate? This question was at the heart of the discussion with Piers Ridyard, CEO of Radix DLT, Sergej Kunz, co-founder of 1inch Network, and Aaron Tilton, CEO and co-founder of SmartFi. The session was moderated by Nelson Merchan Jr, CEO of Light Node Media.

During the discussion, Shane noted that today, someone could get a decent 10% yield, which would be considered a great yield in TradFi terms. 

But just like in TradFi, it is getting increasingly more difficult to onboard new users because those who are jumping on the DeFi train are getting more knowledgeable in using these protocols.

“So I will say that DeFi is sort of following TradFi in the sense that the user is just getting tougher and it requires a certain amount of sophistication to continue getting 20% APYs and beyond,” said Shane. 

In fact, there seems to be a Catch-22: To maximize yield, one has to figure out what the trade is. But if you do and do not talk about it, not many people are going to engage on either side, said Aaron. 

For DeFi to have a future, the face of the trade needs to be broadened and it must be engaged in structures that are typical and outside of just crypto, he added.

Sergej agreed with Aaron, noting that in traditional markets, “most of the large hedge funds, for example, analysis technologies, you don’t know what their strategies are, so there will be that arbitrage happening”. 

But Piers disagreed with this point of view, noting that on Uniswap, a popular decentralized exchange, the provision of liquidity works differently. 

Instead of a typical order book, Uniswap utilizes liquidity pools facilitated by smart contracts. Users gain a portion of the trading fees for the pair of tokens that they lend to the pool. This has proven to be a popular source of optimum liquidity for traders that has served to boost Uniswap’s rankings since the initial DeFi boom.

What Lies Ahead

Looking at DeFi’s current trajectory, more decentralized derivatives would possibly emerge within the 12 months, presenting a great opportunity for capital providers. A major challenge remains, however, as gaps in technological infrastructure and knowledge are likely to impede the evolution of DeFi. 

Nevertheless, as more institutions hop on the DeFi train, institutional demand for insurance and mitigation of custodial risks will certainly push growth in DeFi systems. 

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