6 Big Changes in DeFi by 2030 — You Need To Know
Step into our time machine and get ready to explore the state of DeFi in the year 2030. Are you ready? OK, let’s go.
The big things that will shape the very meaning of “DeFi”:
- Permissioned & Permissionless versions of DeFi
- Aave, Compound, JPMorganFi
- Tokenization of real-world assets
- DeFi Reputation
- Real Yield and the Cambrian explosion
- Permissionless DeFi: More sophisticated & untraceable
Permissioned & Permissionless versions of DeFi
Governments are starting to understand the ramifications of non-custodial wallets, like the popular Metamask. Theoretically, they could track transactions because of the public blockchain, but in reality, someone can just make a new wallet address every time they transact, not to mention the use of coin mixing Dapps like Tornado Cash.
World governments will split into the Crypto+KYC (Know Your Customer) model of regulation, while others will be happy to invite all comers, bringing capital and innovation to the country.
The European Union has just released new legislation called “Markets in Crypto-Assets” (MiCA) law, which requires crypto companies to get a government licence to operate.
So, how’s all this going to end?
Dapps will need two versions. One that displays in KYC countries, that offers access only to KYC verified wallets. And another that offers non-KYC access, much like the wallets of today. (But with vastly better UI)
There are several aspects that make DeFi, well DeFi. So, if there is a “Permissioned” version of DeFi, we may need to call it something else, like “KycFi” or “VeriFi”? (I don’t know, you tell me)
Aave, Compound, JPMorganFi
On-boarding TradFi (Traditional Finance) into Web3 is a near certainty, it’s just a question of time.
Aave is all over this with their “Arc” product. It essentially is a permissioned version of their regular Aave Dapp, currently, around 30 financial institutions have access to private pools of DeFi liquidity. Kulechov the founder of Aave said. “This allows institutions to leverage almost all the benefits of DeFi while remaining aligned with their compliance requirements”.
Compound has announced they are building their own chain called “Gateway” with Parity Substrate technology (which is natively compatible with Polkadot). They stated, “Gateway will evolve into the backbone of a global interest rate market, capable of supporting any asset — including the wave of currencies, assets, and tokens yet to be created.”
Now for the slightly gross part: JPMorgan. Yes, they are starting to spend big on their own chain called Onyx. They even have their own coin called “JPMCoin”, it seems that this coin will be used the same way that the XRP coin is supposed to work.
All of this is obviously not “DeFi”, but I can see a world where nearly all money is digitized on a blockchain, meaning it can fairly easily flow into real DeFi, into Bitcoin, into countries with favourable crypto laws.
Tokenization of real-world assets
We’re in a bear market and the total market cap of DeFi is at about $70 billion. Have a look at this graphic from Chainlink.
What if I told you that DeFi TVL could 1000x by 2030. That would be just $70 trillion in TVL, still only a fraction of the above graphic. (You dear reader are not ready for $700 trillion at 10,000x)
Are you still with me?
J.P. Morgan have openly stated that their tokenization plan is aimed at traditional assets like U.S. Treasuries or money market fund shares.
Over time, they believe that these assets “could all potentially be used as collateral in DeFi pools.”
The takeaway is that KycFi will allow the tokenization and onboarding of trillions of dollars to blockchains, these funds will spread out making their way into every corner of DeFi.
DeFi Reputation
Permissionless DeFi needs a way to give a credit score to a wallet without identifying the individual.
There are teams already working on this problem. When they do crack it, a new credit system will emerge, similar to the credit scoring system currently used in TradFi.
I can see a future where there are several reputation systems, you choose which one you want to use and how much information you want to give about yourself.
The main point is for DeFi protocols to be able to assess the credit worthiness of a user, and based on the credit score offer credit facilities. Currently, all loans have to be fully collateralized, meaning if you already have the money you can borrow money (unless you’re Three Arrows Capital).
Imagine a world where you work for a DAO. The DAO pays your “salary” into a wallet. You pay for all your living expenses with your wallet. It’s not hard to imagine that a reputation system could emerge that could give you a credit score.
This may not be for everyone, but if DeFi is to offer house mortgages worth trillions of dollars, this will be a necessary step.
Real Yield and the Cambrian explosion
The Cambrian explosion was a period of time about 540 million years ago when an incredible array of new organisms appeared, paving the way for every organism alive today.
Many use this as an analogy to this current time in crypto and DeFi. I agree the sheer quantity of experiments going on right now is mind-blowing, and out of this will emerge the infrastructure, the frameworks, and the financial models that actually work.
The thing most people don’t add to this analogy is that 99.999% of the creatures that evolved in this period died out. They were the experiments that led to viable organisms that filled every niche on the planet. As goes the Cambrian explosion so goes the DeFi explosion.
Most of the DeFi Dapps in existence today are not going to make it (NGMI), but the lessons learnt from their experiments will live on in the winners.
We’re currently going through a Cambrian explosion in DeFi, where everything and anything under the sun is being experimented with. From these experiments, a new financial system will be born.
One prediction on a current experiment; Protocols having a high token inflation rate and then paying yield in this very same native tokens are headed towards an evolutionary dead end. Liquidity providers and stakers will demand stable yield probably in literal stablecoins.
Permissionless DeFi will be more sophisticated & untraceable
As already mentioned, governments are waking up to the implications of crypto and DeFi. Some will try to ban DeFi completely while others will embrace it.
This will pave the way for much more sophisticated and untraceable DeFi protocols. Just because your country has banned non KYC DeFi doesn’t mean you won’t be able to use it. DeFi developers will rise to the occasion, integrating all sorts of tech to make you untraceable.
Want to use DeFi with Tornado Cash baked into the protocol? No problem.
Want to have VPN tech baked into DeFi? No problem.
Any privacy technology imaginable can be integrated into DeFi.
The year 2030
We’re in for one hell of a roller coaster ride over the next 8 years. Fortunes will be won and lost, DeFi billionaires will be minted.
My question to you is, Who is going to make it?
Make your play, good luck and I’ll see you on the other side.
