Last week we sponsored the DeFi Summit in London; 300 DeFi enthusiasts, developers, fund managers, investors, and founders got together at Imperial College to discuss the status and the development of Decentralized Finance. Cambrial and Semantic did a fantastic job in coordinating ~60 sessions across 4 rooms, with speakers and participants from all over the World.
This article is a highlight of my top takeaways from the conference as well as a recap of what we announced.
We announced our Open Finance Developer Kit
Oasis Labs and the Oasis Network can help expand adoption of DeFi and Open Finance. We believe that the next generation of Open Finance dApps will be powered by Privacy, Scalability, Composability, and Identity: we announced the launch of our new toolkit that will “empower developers to write dApps that keep data confidential while simplifying the integration of Open Finance protocols, primitives, and services”.
For those who missed the event, we recently published a blog post with our view.
The need for a privacy-preserving version of Compound or Fulcrum
Lending currently accounts for roughly 85% of the volume in DeFi (source: defipulse.com) and virtually all of it runs on Ethereum. This means that wallet address, function, amount, fees are all public.
But this leaves a big gap when you compare it to how traditional financial systems run efficiently — participation of institutions or individuals in a certain financial activity is intentionally considered highly confidential and hence kept private. Why should it not be the case in Open Finance?
As an example to show the relevancy of privacy, we proposed the architecture of the two most common function of a privacy-preserving version of Compound. In the current model (left side), the method (mint or borrow) and the amount (payload) are both publicly available. In the proposed model (right side), these pieces of information are encrypted and not revealed to the market.
The integration between DApps and wallets, powered by a user-friendly UI and guaranteed by the security provided by the integration at smart contract layer, is laying the foundation for a much better user experience. In particular, we recommend checking out what Argent, with its user-friendly and secure wallet, and Gnosis, with its multi-sig custodial wallet, are doing.
Security is concern #1 for investors: if I invest my money, I want to make sure I don’t loose it because of bugs, technical issues, or fraud. Given that investors can’t verify lines of code or sources of information such as oracles and auditing firms don’t have a strong reputation yet, insurance becomes extremely important to convince liquidity providers to route their investments to Open Finance products.
An interesting model has been proposed by Nexus Mutual: they advocate for the creation of a fund that covers against smart contract failure leveraging members contribution only and using it to establish validity of claims.
User verification and KYC are ways to prevent system attacks and comply with regulations. Onfido, an identity provider, is on a mission to make identity portable and it’s piloting an on-chain deployment to store all the cryptographics info to ensure the non-tampering of credentials and the secure communication between parties.
What still remains pending is how to ensure completeness of the user’s financial history. As we anticipated in our introductory article, identity also means completeness of the user’s financial history in order to create a reputation system that enables the shift from over-collateralization to under-collateralization.
As highlighted by the UMA protocol, a decentralized oracle must work in order to build truly decentralized and scalable financial smart contracts. Bridging on-chain and off-chain sources of data becomes an imperative to create real-world alike services in Open Finance.
The Provable team is working on making oracles easy to access, blockchain agnostic, and secure.
A very interesting point of view has been brought by the DappRadar team: in their view, gamers are the most obvious audience for Open Finance. The demographics of gamers (Millennials and Gen-Z) is the main reason behind their view: people in this age range are already used to digital tokens and it’s just a matter of time before these assets will become tradable on some markets: for instance, it will be possible to take a non-fungible token from a game, wrap it into a tradable token, and then use this token to buy more non-fungible tokens.
Although the conference highlighted a lot of excitement and positivity around the next steps in Open Finance, some questions remain open and top of mind for the audience. I captured some of them here in case they serve as an inspiration for future collaboration and research.
- Is it really possible to build a truly decentralized financial system if contract owners can upgrade the contracts themselves?
- For organizations that rely on a voting system, there is a need to create emergency programs. However, how can we trust users to vote in favor of solving a fallacy? If that decision needs to be validated, how can wait for, ie, 2 weeks for this to happen?
- What are the compliance, stability, and scalability implications of bringing Open Finance to traditional institutions?
- If we compose multiple protocols in an Open Finance dApp, whose responsibility is going to be if something goes wrong (ie, a bug in one protocol)?
New to Open Finance? Some resources you may find useful
- DeFi stats: https://defipulse.com/
- What is a CDP? https://defipulse.com/blog/what-is-a-cdp/
- DeFi vs FinTech: https://tokeneconomy.co/defi-vs-fintech-d152bae2585c
- DeFi prime: https://defiprime.com/
- DeFi: What it Is and Isn’t: https://medium.com/coinmonks/defi-what-it-is-and-isnt-part-1-f7d7e7afee16