Key Points:
- Blockchain technology and decentralized finance (DeFi) have the potential to transform the asset management industry.
- Blockchain allows for the tokenization of assets, enabling a more efficient and accessible infrastructure for finance.
- Ethereum, a general-purpose blockchain, offers a programming language that supports the creation of various applications and smart contracts.
- DeFi applications are experiencing increased adoption and growth, with a focus on security and insurance being crucial for scalability.
- Governance in DeFi differs among applications, with the need for integrity, investor protection, and decentralization.
- Yield-bearing strategies in DeFi provide attractive returns but come with potential risks that investors need to consider.
- The future of blockchain and DeFi looks promising, with ongoing developments in scalability, security, energy efficiency, and usability.
“The future of assets is tokenized,” said Mona El Isa, the founder and CEO of Avantgarde Finance, during the Alpha Summit by CFA Institute. This statement captures the potential impact that blockchain and decentralized finance (DeFi) could have on asset management.
El Isa, along with Ethereum founder Vitalik Buterin, discussed the evolution of blockchain technology and the future of DeFi during the summit. They highlighted how blockchain technology goes beyond cryptocurrencies like Bitcoin and can fundamentally reshape the infrastructure of finance.
While Bitcoin’s blockchain focuses on maintaining the cryptocurrency, Buterin saw the need for a more versatile blockchain. In 2013, he started working on Ethereum, which supports a programming language and allows for the creation of various applications and smart contracts.
El Isa, with her experience in traditional finance, recognized the inefficiencies and high barriers to entry in asset management. She co-founded Melon (now Enzyme protocol) within Avantgarde Finance to break down these barriers. Enzyme is an “on-chain asset management infrastructure” built on Ethereum and has seen significant growth, with $40 million in assets under management since its launch in January 2021.
DeFi, as a category of applications on the blockchain, aims to replicate financial services and contracts in a decentralized manner. Both El Isa and Buterin emphasized the recent traction and growth of DeFi applications, with a focus on enhancing security and insurance to support further scalability and mass adoption.
The governance model in DeFi varies among applications. While some, like the Uniswap decentralized exchange, require minimal governance, more complex protocols like Enzyme have decentralized upgrade processes. El Isa highlighted the importance of user representation and established a governance council consisting of technical experts and users.
The appeal of DeFi lies in its yield-bearing strategies, particularly in environments of limited yields and high volatility. However, investors must be cautious about potential risks, especially in protocols with less established code bases. The scalability of protocols and technical risks are ongoing challenges that need to be addressed.
Looking ahead, Buterin expects improvements in scalability and security through Ethereum 2.0, along with an algorithm to significantly reduce the energy consumption of the Ethereum network. The future of blockchain and DeFi holds promise, with real usage and traction, increased focus on usability, and a shift towards active management to generate alpha.
Overall, blockchain and DeFi have the potential to revolutionize asset management, offering an efficient and accessible infrastructure with new opportunities for investors.
