Defi is Dead, Long Live Defi. Welcome to the next step in creating a better financial services universe.
DeFi created a new paradigm in the evolution of financial markets. It challenged longstanding structures in finance by taking transactional control from traditional nexus systems and handing it directly to consumers in Blockchain-enabled peer-to-peer transactions. DeFi bypassed rent-seeking intermediaries and used Blockchain-based business logic automation to offer direct participation to a global community of investors.
This innovation has resulted in easier access to financial instruments, faster transactional processing, and the potential for greater security. According to Forbes, the proliferation of DeFi spurred a 13x lift through 2021, resulting in a $247 billion total value locked (TVL) by December of that year. The breathtakingly rapid growth of DeFi adoption by consumers is a testament to the desire for a more democratic, less siloed global financial services framework.
While relatively small when compared with traditional markets and asset classes, this TVL figure illustrates the explosive growth of a new transactional framework that, until now, has been in its infancy.
However, developing a new financial paradigm does not come without its challenges and setbacks. Despite near-instantaneous transaction processing for payments, settlements, and ownership transfers, the operationalization and commercialization of DeFi exposed several regulatory, risk management, and scalability limitations that represent significant hurdles to mass adoption, regulatory approval, and institutional use.
DeFi is built on Blockchain technology and, for the most part, during its early deployments, pegged token value to cryptocurrency rather than to underlying assets. As a result, decentralized financial instruments suffered from the risks and volatility of the cryptocurrency market.
This instability made it unattractive for novice users or investors who lacked the technical know-how or the market savvy to use it profitably, while simultaneously raising concerns among regulators about disclosures and retail investor protections.
The decentralized nature of DeFi allows different entities to blend different protocols to create decentralized applications (dApps). This function is important for the growth of DeFi but also increases the potential for fraud in DeFi-related ponzi schemes.
This risk underscores the over-arching concerns about limited consumer protections, the threat of hacking, structural challenges in the collateralization of DeFi loans, faulty and poorly managed risk-management mechanisms, and the ever-present risk of money-laundering and other illicit activity that the anonymity of crypto wallets may facilitate. Ignore these issues, and DeFi surely dies.
The solution to these challenges requires connecting bleeding-edge innovation with tried-and-true first principles. Blending DeFi’s unique functionality with regulatory compliance and real-world assets will increase its adoption and use in the real world.
While the current iteration of DeFi protocols has speculative components and limitations that make it unattractive for real-world adoption, the demonstrated potential of DeFi already has institutions experimenting with digital and tokenized assets in new infrastructure environments to evolve their products and services offerings. Centralized institutions will tokenize all commodities and forms of collateral and take over the DeFi space. This impending reality makes it critical to provide DeFi with real-world asset backing, increase compliance such as adherence to KYC/AML standards to make it attractive across different jurisdictions, and build robust and transparent protocol-native risk management.
The challenges in the current iteration and threats of institutional takeover demand DeFi’s evolution to a better and more advanced protocol. Enter Fathom.
Fathom bridges the gaps left by the initial wave of DeFi protocols, addressing their observable limitations while building on DeFi’s core benefits to enhance adoption and scalability.
The Fathom DeFi protocol introduces a new era in the industry through stricter collateral standards and tokens backed by real-world assets for sustainability and better regulation to provide sustainable yield to both retail and institutional users. It also offers the ability to rapidly create and deploy dApps and financial products directly into the protocol’s marketplace.
Fathom users get enhanced access to products and services recognizable from traditional markets that have been constructed using the best technologies to emerge within DeFi.
These powerful capabilities are enabled by Securrency’s institutional-grade platform on which Fathom runs.
Securrency has been a first-mover in bridging the gap between institutional finance (TradFi or CeFi) and the dynamic possibilities of DeFi, combining world-class institutional and compliant finance with the state-of-the-art DeFi to create a well-regulated environment for the development of decentralized finance. The company develops and deploys proprietary patented technologies to facilitate DeFi development through Securrency Solutions Limited, a Blockchain-based capital markets infrastructure and products company.
Fathom builds upon this solid framework to create a better financial services universe. It deploys sustainable financial instruments and enhances global liquidity.
The protocol moves global, democratic DeFi to its logical evolution. Fathom aims to realize its objective of improving finance by combining Securrency’s state-of-the-art technology with the power and security of the XDC network to establish itself as the better DeFi protocol.
Unimproved in its current form, it is only a matter of time until DeFi is dead or relegated to an insignificant gray market noted only for its faults and engaged in a never-ending battle with regulatory authorities. Moving DeFi to a better, more functional, and sustainable system
requires the level of innovation and development that Fathom offers. It requires a framework that safeguards user interest, allows growth and scalability, and presents more institutional and cross-border uptake opportunities.
This is the promise on which Fathom is delivering.