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Is DeFi Doomed? Glen Weyl Says Collaboration & Regulation Hold the Key

Last Updated May 31, 2024 2:03 PM
Teuta Franjkovic
Last Updated May 31, 2024 2:03 PM

Key Takeaways

  • Microsoft’s Glen Weyl has said that regulation and co-lab with TradFi are crucial for DeFi’s future.
  • The rise of digital payment options challenged BTC and ETH dominance; crypto needs to evolve beyond transactions.
  • Weyl commented that blockchain’s future lies in applications like identity management and tackling scams.

Following the approval of spot Bitcoin ETFs on January 10, 2024, the Securities and Exchange Commission (SEC) has also approved a rule change that permits the listing of spot Ethereum ETFs in the US, effective May 23, 2024.

CCN discussed these advancements and regulation and co-lab between TradFi and DeFi is important, with Glen Weyl , the economist at Microsoft Research and Founder and Chair of the Plurality Institute, shedding light on the broader implications for the crypto market.

Beyond Payments? UPI, QR Codes as Challenges to Bitcoin & Ethereum

When asked about the potential impacts of the recent US approvals for Bitcoin and Ethereum ETFs on the crypto market and investor sentiment, Weyl expressed that while these are significant events, equally crucial are the advancements in digital payment methods in other contexts that serve similar market needs as cryptocurrencies.

He highlighted the rise of the Unified Payments Interface (UPI) in India  as a key example, which has addressed many of the demands that cryptocurrencies aim to fulfill. He noted that this model is being replicated in various regions, including QR-based payment systems now prevalent across Latin America  and many parts of Asia. According to Weyl, these alternatives are increasingly meeting the fundamental demand targeted by cryptocurrencies, which could profoundly impact the crypto market.

When talking about predictions for some major cryptocurrencies such as Bitcoin and Ethereum, Weyl suggested that as basic payment demands are increasingly met by other digital payment solutions, the cryptocurrency market may need to evolve to remain relevant. He noted that the market might continue towards heightened speculation and volatility, which it is already known for, or it might need to carve out new niches beyond mere payment solutions.

He explained:

“Used to be that for me to make a transfer from my bank account took three days, usually cost me $20. Now I can do it within a couple of hours and with very little expense. So I think that a lot of this, like, basic transactional need is being served by other means. It’s being served because of the pressure that was put on it by crypto, but nonetheless, it’s being superseded by other cheaper means of payment.”

To stay relevant, Weyl believes that the crypto sector may need to explore new applications, such as those related to identity management or more innovative financial transfers, which could provide new value propositions beyond conventional transactional needs.

Regulation & Integration Key for Future – Europe, Switzerland as Potential Hubs

Queried about his views on the future of decentralized finance (DeFi) and its integration with the traditional financial (TradFi) system, Glen Weyl noted the changing regulatory landscape in significant markets such as China and the United States, where it has become increasingly challenging and costly to operate DeFi platforms. Weyl suggested that jurisdictions that are more proactive about integrating DeFi, such as parts of Europe, Switzerland, and some regions in Asia outside of China, could become focal points for its future development.

Weyl emphasized the need for DeFi to foster a more positive and close relationship with regulatory bodies instead of attempting to operate under the radar, a strategy that is becoming less viable due to tighter regulations. This shift would require DeFi to adapt and possibly integrate more with traditional financial systems in a regulated environment.

Discussing the topic of stablecoin regulation, Weyl pointed out that the role of stablecoins is becoming less clear, especially as services like FedNow  make traditional USD more available and interoperable. This development could diminish the unique advantages that stablecoins had offered in terms of stability and cross-border transactions.

He asserted:

“I think the real question is, is there a new generation of stablecoin that can actually go beyond just linking to existing currencies, and instead can offer something richer, either an indexing to inflation, which is more volatile these days for individuals, or something that’s more international? But I think that the era of stable coins that just mimic an existing currency is probably both regulatory and just like consumer use reasons, going to be declining quite rapidly.”

Expert Sees Blockchain’s Future in Tackling Scams and Spam

When discussing the next hot sector in crypto, Glen Weyl expressed enthusiasm for the application of blockchain technologies in areas like governance and identity, focusing on enhancing the social fabric rather than just the financial speculative aspects.

Weyl noted the sustainability challenges within the crypto space, particularly due to the prevalence of scams and spam. He mentioned his interactions with Ethereum co-founder Vitalik Buterin  on Twitter, where a significant portion of the content is not genuine, underscoring the trust issues plaguing the industry.

Weyl emphasized that for the crypto sector to thrive, it must address and mitigate the trust erosion caused by these negative dynamics. This shift could lead to a more engaged and committed user base, contributing positively to the overall growth and legitimacy of the crypto space.

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