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TradFi & DeFi: Barney Mannerings on Where Permissionless Inclusivity Fits in Web3

Last Updated March 11, 2024 9:19 PM
Shraddha Sharma
Last Updated March 11, 2024 9:19 PM

Key Takeaways

  • DeFi protocols are now designed to meet diverse real-world use cases.
  • Vega Protocol’s Barney Mannering believes that the perception of DeFi varies significantly.
  • DeFi is not expected to fully replace centralized financial systems, according to Mannering. 

The DeFi market continues to surpass the $100b figure in terms of total value locked amid a banking crisis in the US. After the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank, NYCB received funding to stay afloat.

While warnings erupt around risk management in traditional finance (TradFi), can DeFi bridge the gap in 2024? CCN spoke to Barney Mannering, Founder of futures and perpetual DEX Vega Protocol to understand if the two can align.

DeFi Potential in Bridging TradFi Gaps

The executive thinks that newer and better blockchain technology, including faster and more expandable basic networks and specialized financial projects, will help DeFi become more widely used in the real world, beyond its current limited scope.

DeFi TVL | Source: DefiLlama

The founder of Vega observes that people’s views on DeFi differ greatly. To some, DeFi is recognized as a sophisticated alternative to traditional ways of investing and trading, and this recognition is growing.

He said, “The key thing to remember about DeFi, as opposed to traditional finance, is that it allows you to digitize all forms of value.” Mannering added, “Smart contracts automate processes, tokenization unlocks new asset classes and enables fractional ownership, and unlike traditional finance, anyone can access financial services, invest, lend or borrow without a central authority deciding who qualifies.”

He highlighted the ability of developers to innovate and contribute to an open financial ecosystem through the creation of new apps and products.

DeFi Unlikely to Completely Overhaul Centralized Financial Systems

Mannering thinks that decentralized finance won’t entirely take over the usual centralized systems. Instead, he sees a future where both systems blend. He said, “In the future, there will most likely be a hybrid model. But that decentralized element will help keep the old system honest.”

Considering DeFi’s focus on inclusivity, we inquired with Mannering about the wider economic effects of permissionless and decentralized trading platforms, particularly in terms of promoting global financial inclusion.

According to him, “Fundamentally, permissionless markets mean markets that are not established, or controlled, or mediated by any one person or institution.”

Mannering believes that permissionless markets facilitate the discovery of prices and values freely, accurately, and fairly. He said, “Add to that the basis of much of crypto trading: 24/7 trading, and lower barriers to entry and you have an economic system that is radically different from what we’re used to — and one that has the potential to work for the benefit of everyone!”

We also aimed to evaluate the current attitude towards DeFi within the circles of traditional finance and asked Mannering about the same.

He said, “This is highly dependent on who you talk to. For example, many traders see both the market opportunity for defi and crypto as well as the potential for streamlining processes, cost savings, and the benefits of increased transparency for counterparty and market risk management.”

Mannering mentioned that top executives, compliance and operations leaders, and regulators are very much aware of the new risks that come with innovative technology. According to Mannering, they are concerned about the possibility of losing control of a system that is more equitable and operates on a peer-to-peer, decentralized basis.

Indicators of DeFi Growth

For users, it is crucial to keep track of how fast DeFi is expanding. But, moreover, if that growth is sustainable. Mannering recommends monitoring several important indicators to gauge DeFi’s expansion. He emphasized Total Value Locked (TVL) as a critical measure, which reflects the total amount of cryptocurrency within DeFi protocols.

DeFi Users
DeFi Users Over Time | Source: Dune

The executive added, “Also, watch the number of unique addresses interacting with DeFi apps, as that indicates user adoption. However, unique addresses are not the ideal indicator, as one user can be associated with multiple addresses.”

He also advised watching trading volumes on decentralized exchanges (DEXs) and keeping an eye on the emergence of new DeFi projects and partnerships, as these factors frequently spur innovation and growth within the DeFi sector.

Regulatory Convergence of DeFi and Traditional Finance

Mannering emphasized that the blending of DeFi and TradFi is set to significantly alter the regulatory framework. He said, “As DeFi gains mainstream adoption, regulators are going to have to address the unique challenges posed by decentralized systems, particularly in areas such as AML/KYC compliance, market integrity, and consumer protection.”

To close the gap in regulations, he pointed out that authorities must adopt new, technology-based methods for oversight.

He added, “Using blockchain analytics for monitoring and enforcement is one such example. Standardized protocols for identity verification and transaction monitoring will be crucial for DeFi platforms to meet compliance obligations while keeping user information private.

Mannering acknowledged the challenges ahead, noting that many lawmakers globally haven’t yet fully considered DeFi or its implications for regulation and enforcement. He stressed that the future of financial regulation in this new, mixed landscape will depend on cooperation between regulatory bodies and industry participants. Education is key, he emphasized, to prevent poorly crafted regulations by those who ought to have a deeper understanding of the issues at hand.

A Cautious Approach

As the DeFi sector continues to grow against the backdrop of weakness in traditional finance, the Vega Protocol chief highlights the potential of decentralized finance. Mannering’s insights offer a hopeful vision of a more inclusive, transparent, and efficient future where the two could converge.

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