The “Unravelling DeFi” Novum Insights panel on 22 February, certainly sparked some robust discussion. Our exceptional panellists brought together years of expertise in traditional markets, blockchain, crypto and DeFi and market analytics. Not surprisingly, emotions ran high as the regulation discussion got in full swing. We summarise the arguments from Loretta Joseph, who has been a banker, trader and regular and has worked with multiple countries to develop digital asset regulation, and Julien Bouteloup, Ethereum Developer, Founder of Stake Capital and Developer for Curve Finance. The discussion helps illuminate the similarities and differences and debates between DeFi and TradFi. The full webinar is available below.
Loretta Joseph - TradFi
Regulators protect consumers and investors. In DeFi, you don't have any intermediaries to regulate, So it's totally P2P. The question is how it will be regulated in the future? People are going to get scammed. When people start to get scammed, the first thing they do is complain to the Regulator. You can't discount what we did in traditional finance markets and say that it's all going to be new and exciting, because it's, it's nothing new in DeFi, and I do worry about the P2P element of it, and people getting absolutely ripped off and scammed. We've already seen that maybe three times in the last four months.
I'm also mindful that we're getting people into this industry that don't understand risk. And you have to understand risk, it's always buyer beware, if you're going to trade anything, you need to understand the underlying risk. There is no asset class that just keeps going up. My point is that you need to understand your inherent risk and don't do things just because everybody's story and all the developers are doing it. And everybody thinks that crypto is gonna go one way forever. As a regulator, I have to tell people to do whatever you want with the technology, I understand the tech and that's great. But buyers beware. Because if things go pear shaped, which they always do, we see corrections in markets all the time, and you get any return on one side of it. Don't come back and say that you got scammed or you lost money. Only ever invest in this stuff, as much money as you can afford to lose.
Well, I think that's my message. Because I don't think that people understand that. And the millennials understand that risk. And understanding the inherent risk of these things is very volatile, very, very speculative movements, and across all these projects, if you don't understand risk, you will get hurt. So you have to do your homework, and you have to understand.
I'm a realist. I was a bond trader in the GFC. When you trade in traditional markets, you have regulators, you have Prudential regulators that regulate banks, we have non bank regulators.
My point is that in DeFi, there's no one to go back to. If a bank goes under, they have to go to the central bank, the central bank is the lender of last resort. I think there are exciting things coming in the world of decentralisation and protocol development but I just I just don't want people to run out there and start doing this stuff and get themselves hurt. The next part of this is how do you stop consumers and investors getting hurt because there's no intermediate re-regulation, which we've always done. Believe me, but it's still risky and I just think people have got to understand their risk before they do it.
Julien Bouteloup - DeFi
DeFi is dangerous, because it's decentralised and that means that anyone can access it. But my point is, I don't think DeFi is more dangerous than traditional finance. You cannot find anyone in the world that never got wrecked by traditional finance. In 2009, the subprime crisis, boom, pension funds, all the economy worldwide got wrecked, everyone got wrecked.
Traditional finance is really dangerous. Traditional finance is not transparent. Traditional finance has nothing to do on the ledger. We don't even know where the US dollars worldwide are, if the company is backed up by money, or whatever. So what happened for example, with game stock, people investing in a stock and then they got shut down from the application level. They couldn't leave the position and a lot of people got liquidated, because they took a shot on the stock. Then what happened is regulation shut down the application wrecked a lot of people and a lot of people lost money. A lot of people are losing money every single day in traditional finance.
In DeFi what we are building is fully decentralised technology, fully transparent, run by mathematics, no one can beat that. We are building on research papers, 40 years of research, fundamental research, discrete mathematics being built and put on chain that no one can beat. You cannot beat that, GitHub didn't exist in the 90s. First, the fact that we're going at the speed of light, is because everything is open source, and everyone can participate.
What I'm saying is that decentralised finance is more open, more transparent. Well, obviously, because it goes at the speed of light of open source, it might not be more dangerous in the sense that it's more than just unstable. But it's actually accessible by more people. So more people don't have knowledge to actually measure the risk. But obviously, decentralised finance, you can access it from your phone. And if you want to build something very quickly, the next day, even if you are from nowhere, you are from a very poor area of the world, you're in an emerging economy, you can still participate. For example, in the NFT world, we have this game called xfinity. We are bringing 150 people from the Philippines that are making more money in a day that they can make in one month just by playing a game. So my point is decentralised finance is a technology that can be inclusive, that can bring a lot of people inside.
It's exactly the same concept of traditional finance, and we adopt them in decentralised finance, we have futures, you have options, you have the ability to leverage yourself to hedge yourself. Then we provide those different strategies so you don't have to do anything. So if you want to invest in a conservative strategy, they will basically lend this capital to different providers, and then we'll share the best yield for you, then you can go a level down, take high medium risk, and then we'll basically take leverage for you. And if you go to high risk, then we do like the plan is to do like most more risky strategies, like hedging leverage options, like all these different things. You can also have like exotic strategies, like for example, if you want to invest in the NFT world. So think of a really easy application for people that have no experience of DeFi and they don't understand Web3 , wallet, gas, blocks - you can just connect with the email with the phone, and you can participate.
I think it's a huge opportunity for this society. I'm not sure if we are building a completely new, perfect world of perfect society, or are we just going to replace the people on the top with some people like some geeky nerds, and spending all the time on the laptop? That's exactly what we're trying to achieve. Basically, we try to give the vision of where we tried to build a better society. But regardless, whatever is being built in blockchain can be verified on chain. And this is actually a complete new paradigm, meaning that whatever is being built, whatever you're actually using on the front end, as an application can be verified.
We are actually building in DeFi everything that traditional finance has, but faster, stronger, more transparent and accessible by everyone that's here, it's really different. It means that anyone in the world can access technology, and doesn't need to ask permission from anyone. I think it's necessary to push for innovation, and to build a better world.