Web3 innovations are replacing intermediaries with middleware protocols. Thanks to the DeFi revolution, it’s no longer about companies extracting value from users; instead, it's about developers extracting value from protocols.
Blockchain, once considered a nascent technology, has become increasingly critical infrastructure for businesses that want to keep pace with the future of information and value transfer.
Blockchain technology is already entering the early phase of majority adoption, especially by the finance industry. Recalling the massive digital transformation propelled by the internet, many forward-thinking enterprises in the finance sector and beyond are already taking important steps to become blockchain-ready.
To decode the nuances of Blockchain Middleware and DeFi, and what it means as an opportunity for the world and startup ecosystem, five thought leaders from the space got together to decode ‘The next wave of blockchain middleware and DeFi’ over an insight-packed conversation at YourStory’s The Metaverse Summit.
Future-proofing the adoption strategy
Tuhina Singh, Co-founder and CEO, Propine, the first fully regulated independent digital asset custody service provider to be granted the Capital Markets Services (CMS) licence in Singapore, opened the discussion by contextualising how they’re building safe and efficient bridges between traditional and decentralised finance.
“We believe that the open financial system is here to stay, and it is Propine’s mission to create equal access to opportunity for everyone. We do our bit by democratising access to capital markets – building safe and efficient bridges between traditional and decentralised finance,” she said.
With institutional custody solutions and regulated infrastructure in Web3 still at its nascent stage, Tuhina spoke about how she saw it forming a critical piece to institutional participation in Web 3.0.
“I think the future will have a continuum of options, which will satisfy varying needs of customers,” she said.
Talking about how there will also be a variety of institutional players on board, Tuhina added, “There will be a space for mobile based infrastructure, hardware wallets, and decentralised private key management, as well as regulatory custodians, which will be running wallet infrastructure, which will in turn get plugged into dapps, gaming SDKs, exchanges, mobile apps.”
“I believe that regulated wallet infrastructure providers or custodians are going to be an extremely critical Bureau. Managing compliance risks involves thinking about the risk management frameworks and operational controls,” she said, contextualising how the risk for institutions to participate in the space was just too high otherwise - and how in worst case scenarios, institutions risk losing their licences, and hence the entire business. “That's exactly what a regulated custodian like ourselves is trying to plug the gap for,” she added.
Alexander Szul, CIO, of Benqi, a DeFi product enabling liquid stacking, lending, and borrowing on Avalanche, spoke about how his startup empowers the depositor, rather than the middleman.
“Essentially, what we're allowing is individuals regardless of retail-size, protocol-size, or even enterprise scale, to be able to freely lend and borrow capital on decentralised markets in an open way,” he said.
“I think that democratising value is something that blockchain technology, especially DeFi middleware, really does facilitate. We can actually open up the ability for money to be lent and shared in a way that actually favours the depositor, rather than the intermediary in a very conducive way,” he added.
“One of the cool things that I'm seeing emerge in the DeFi space overall, is actually the emergence of structured products.
Mayur Relekar, Co-founder and CEO, Arcana - the storage and privacy stack for Ethereum dApps - spoke about how they aim to make it easy for developers to ensure the security and privacy of user data.
“Almost every application that exists has a datafile, which comprises an authenticated user wanting to securely store some data and manage access to it. We essentially manage authentication, storage, and access management for all kinds of data. We work with all kinds of dapps to secure the entire pipe, or just individual pieces,” he said.
Mayur also spoke about how composability in Web 3 worked like compound interest - the more you can work with different protocols, the more you're compounding the value for everybody.
Evolving synergistic relationship with traditional financial institutions
2021 showed us that crypto didn't destroy or damage the central banks just like traditional banking didn't kill crypto.
Tuhina also spoke about the relationships between banks and fintech players over the last few years, and how she saw the synergistic relationship evolving.
“We're beginning to see that transformation in even really large traditional banks that started off with a we-are-going-to-do-everything-in-house approach to coming round full circle, where they’re exploring tactical and strategic approaches to fintech relationships,” she said.
“Banks are trying to find ways to work with fintech startups in the space, and create a win-win relationship with them, rather than trying to just be the taker in the relationship,” she added.
India’s young creators and the DeFi moment
“We now are seeing kids in Tier II and III cities in India trying to build DeFi products from their homes, and the reason why this is possible is firstly, the amount of information on how to build stuff,” said Mayur, talking about how information was far more open and available than ever before in history and how it was empowering young creators in India to access, just about the same time as the West, or the Far East to develop ideas for DeFi.
“Aspiring young Indian entrepreneurs can just sit at home, watch a few tutorials, wrack their brains and build a protocol, requiring nobody's permission—nothing at all, to build on their ideas for the DeFi space. And that is why you're seeing the rate of innovation right now,” he added.