Can the DeFi summer reappear under external pressure?

The frenzy of the "Summer of DeFi" has left a strong mark in the history of cryptocurrencies. Now, due to the deterioration of macroeconomic conditions and downward pressure caused by regulatory factors, can the DeFi summer reappear? Rob Leshner, founder of Compound Labs, gave his own answer.

By Darren Kleine | Blockworks

Compiled by: Felix, PANews

When DeFi was still a new thing, the crypto industry was obsessed with this fast-growing track and its many innovations. This period was the summer of DeFi.

But given current macroeconomic conditions and regulatory focus, things have changed. The DeFi summer is now a distant history.

In a recent episode of the Empire podcast, Compound Labs founder Rob Leshner answered a question about DeFi's potential return to summer: What exactly will pull people back to DeFi?

Rob Leshner first introduced the current situation: "One of the really big trends that happened in the last year is that interest rates in traditional finance have surpassed DeFi interest rates. One of the issues is that banks like SVB went out of business because they took on too much interest rate risk."

“Another reason is that people are not trying to earn DeFi interest rates like they used to,” Rob Leshner said.

He explained that, as of now, it is easier to earn interest on short-term treasuries than on DeFi. On top of that, recent events have led to extreme investor sensitivity, and investors have reduced their trust in all counterparties, even the most credible ones.

The return of DeFi

But Rob Leshner expects DeFi's own advantages to pull people back. Rob Leshner believes that DeFi is in stark contrast to the opacity of the traditional financial system, and the advantages of DeFi have been highlighted in recent economic disasters. Past disasters in the field, such as the FTX fiasco, have caused users to lose trust in the traditional financial system, making users more inclined to self-management and transparency.

"Take their word for it, or check it out for yourself. It can be a powerful thing if you don't have to worry about being deceived."

Rob Leshner said that automation is another important feature that makes DeFi more advantageous than CeFi. "DeFi works autonomously 24/7, with no real managers or maintenance. Long-term, autonomous smart contracts are themselves seen as a better tool for implementing financial markets and products than any tool in CeFi."

Sommelier co-founder Zaki Manian said the idea of ​​running your own bank is great, meaning people no longer need to trust opaque, centralized institutions, but he said it is not feasible yet because users have to take on the complex and arduous work of running their own bank.

Automation solves this problem

Zaki Manian believes that automation is the solution to this problem. It allows users to enjoy a non-custodial, transparent DeFi experience while shifting the complexity of earning yields and managing portfolios to adaptive market strategies.

Automation can also enable stablecoins to generate income, "which is more competitive than the income you get from government bonds and the income you get from financial operations using crypto assets (note: such as buying and selling coins, "mining", etc.) .

“These types of yield generation will be critical to attracting capital into the space, in addition to the types of liquidity that currently represent speculation,” insisted Zaki Manian.

Despite this, Zaki Manian admitted that there is still room for improvement. There are two main areas that are being improved: one is the user experience gap, too much DeFi is difficult for non-crypto people to understand; the other is the gap in the variety of products provided, DeFi has a gap relative to traditional finance.

“People want powerful, easy-to-use products.”

Over time, the autonomy of DeFi has great appeal to developers and markets. In contrast, the workload of maintaining traditional markets (including bookkeeping, reconciliation and other activities) is staggering.

Leshner added that the final factor that will pull people back into DeFi is its composability. Advances in one area of ​​DeFi benefit the entire ecosystem due to the interoperability of the system. "When you become a DeFi user, you can benefit from all the improvements in different application platforms at the same time." This is a powerful feature that acts like an invisible groundswell, forming a network effect of continuous improvement.

Leshner believes that people will return to DeFi in full force. "Its advantages are so strong that ultimately DeFi will win. All the recent disasters have reinforced this fact and made me more confident than ever."