GAURAV ARORA, SVP CoinDCX PRO, is in conversation with Aabha Bakaya, senior editor & anchor, Business Today TV as they discuss how CRYPTO and DeFiI are correlated.
Abha asks Gaurav about how DEFI is different from Crypto. Gaurav explains Blockchain as
the underlying technology that allows transactions to be done without a centralized entity. DeFi is the overarching platform that enables lending, earning, stock transactions, etc. and Crypto is one of the most prominent use cases.
Abha then asks about the potential risks associated with DeFi in the Indian as well as global market. According to Gaurav, what is happening is a leap of 150 years of financial evolution within five to ten years. Thus, the early stages come with a possibility of technological risks. As the code in DeFi is open source, it is prone to hacks, attacks and vulnerabilities. On the flip side there are thousands contributors who work on identifying flaws and enhancing the code,
so eventually this will lead to a more resilient and stronger code base.
The second risk is around scalability and cost . For example, Ethereum, despite being the most common decentralized finance entity, can only support 15 transactions per second whereas Visa, which is one of the second largest payment processors, can support many thousands.
There is constant work being done in this space to enhance productivity; for instance the upcoming ‘Merge’ event where Ethereum is moving to an advanced level- Ethereum 2.0 where the electricity cost will go down by 99.9 %.
The third risk is called self-custody. In DeFi, users have full custody of assets which can be accessed using a private key.Thus, the downside is that losing the private key would mean that the user can never access that money again, and if somebody else gets access to that private key, then they can take all of the assets. The solution is a smarter and better recovery mechanism.
Fourthly there are regulatory risks. There's a certain level of anonymity which DeFi brings, which can create risks for money laundering and exploitation. Association of an identity with the transactions without losing the anonymous nature is the key to resolve this risk.
Going forward, Abha asks about DAO and its connection to DeFi.
Gaurav explains that DAO stands for Decentralized Autonomous Organization. It can be seen as the next evolution in workplace organizations. The strength lies in the fact that DAO code cannot be broken, thus it can be seen as the most puritan form of democracy. Also, every decision of DAO is available for audit.
Aabha then moves on to discuss the major concerns of DeFi technology. Firstly Gaurav discusses the factor of pricing as the price has been going against what was actually expected. In terms of regulatory ambiguity, the focus must be on removing inefficiencies, unlocking value and distribution. Hence Gaurav proposes that the next wave of growth is not going to come from just pure speculation, it will come from actual utilities and use cases.
Understanding how exactly to regulate this space is time consuming, yet continuous progress is undeniably seen in this field.