Sustainable DeFi for Global Adoption of Blockchain Tech and Uno Re’s Part in the Movement
Some of the attractive perks that fueled decentralized finance’s (DeFi) meteoric rise in the so-called DeFi summer of 2020 are finally dissipating. The high-octane 50% APR yields, liquidity issues, and much more are now gone, and it looks like DeFi is maturing from the unsustainable designs that led to the problems we’re seeing now and towards safer, more resilient, and more user- and eco-friendly models.
As DeFi evolves and pushes through with these changes, there is now an important need for decentralized finance to become sustainable. The European Union defines sustainable finance as “the process of taking environmental, social, and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects.”
Similarly, sustainable decentralized finance advocates that DeFi protocols take into consideration the environmental, social, and governance implications of their activities, with decentralization taking away the need for adjustments in governance.
On the social front, the drive for blockchain adoption is important if DeFi must eventually overthrow traditional finance. This drive for adoption is predicated on the tripod of inclusiveness, investment in human capital, and community building — three key elements of sustainable finance. If DeFi will achieve its core mandate of taking financial power from institutions and giving it back to the ordinary people, then it is more than necessary that pays some attention to people empowerment and community building.
In the same vein, one of DeFi’s naysayers’ go-to has been the unsustainable frequency of cyberattacks on DeFi protocols. Data from Blockworks show that as of the end of H1 2022, cyberattacks had wiped off almost $2 billion of investors’ funds, with these attacks projected to greatly exceed the $3.2 billion wiped out throughout 2021. Although DeFi is still a nascent sector, governance considerations in sustainable finance mean that investor confidence must be high to drive investments and adoption. This can only be achieved if DeFi protocols go the extra mile to secure their protocols against all forms of cyberattacks, and with the support of well-engineered DeFi Security Infrastructure. Decentralised insurance is at present the most economic, elegant, and readily available base-layer of this infrastructure.
Equally importantly, crypto and DeFi critics argue (correctly) that blockchains like Bitcoin consume enormous amounts of energy that hurts the environment. Before its Merge, Ethereum was estimated to emit as much carbon dioxide as Denmark — clearly unsustainable for our environment. In an era when more people than ever view climate change mitigation as one of the world’s highest priorities, the carbon emissions of PoW blockchains are too conspicuous to ignore.
The Journey To Sustainable Decentralised Finance
On the social and governance fronts, the journey to sustainability for DeFi is a continuous one — just like it is for TradFi. However, environmental considerations for sustainability can be addressed now, as the Ethereum Merge has shown.
By transitioning from a Proof-of-Work to a Proof-of-Stake consensus mechanism, the blockchain’s massive energy consumption has fallen by over 99.95%, making it more eco-friendly, user-friendly, and safer. With the Merge, Ethereum’s energy consumption levels fall to about 0.4% of VISA’s. Seeing that more than half of DeFi is built on Ethereum, the Merge has been a giant step towards sustainable decentralized finance.
For DeFi to become sustainable, investor confidence must be as high as they are with TradFi institutions–if not higher. This can only be achieved through stable and secure protocols, as well as the provision of insurance in case of any mishaps.
It is in recognition of the importance of investor confidence that UnoRe launched its #ETH2 Rewards Slashing Cover, a flagship insurance program protecting against the risk of penalties & missed rewards incurred by ETH validators. Read all about it here.
As the world turns to open, permissionless systems for financial services, these systems can only cause a paradigm shift if they can become sustainable.
About UnoRe
Uno Re is the world’s first decentralised insurance and reinsurance platform, allowing the community to invest and trade in ‘risk’ and receive sizable returns on their investments in one of the safest asset classes in the world. We have over $3.7M in active coverage across various crypto protocols and have underwritten risk for over 100 protocols on our B2C Insurance Sales dApp — The Cover Portal.
