The long-term value of decentralized finance (DeFi) depends on its ability to transform the back-office operations of global banking institutions rather than providing alternative trading environments, according to asset management and banking executives.
Speaking on a panel at the Proof of Talk conference in Paris, the executives said legacy financial institutions are eager to adopt blockchain technology, but are unlikely to do so given the weaknesses in onchain security, particularly in bridges connecting different blockchains.
In April, breaches were reported for 27 out of 30 days, prompting CertiK CEO Ronghui Gu to describe it as DeFi’s worst month in four years. Drift Protocol and Kelp Dao alone were hacked by North Korean cybercriminals in exploits that drained nearly $600 million from the two lenders.
“I don’t think you’ll see growth in DeFi until we solve the first problem … which is hacks,” said Maja Vujinovic, CEO of investment and advisory firm OGroup. “I think it’s an absolute problem until we fix the bridges. I don’t think DeFi will grow outside of the DeFi degen community … until they probably fix a whole stack.”
Her comment was echoed by Ben Nadereski, co-founder and CEO of Solstice, a Solana-based DeFi dividend protocol, who told CoinDesk in an interview that DeFi’s growth is being held back by the onslaught of exploits, a fault he blamed on developers who often build innovative code while not paying enough attention to the principal capital responsibility to manage.
Working on a fix
Stéphanie Cabossioras, chief strategy and global policy officer at Societe Generale Forge, said traditional banks are already working to fix these structural gaps.
She pointed to the company’s track record of tokenizing structured products and green bonds on public blockchains. To make these digital assets work, she said SG-Forge needed to fix the cash settlement layer by developing its own regulated stablecoins, such as EURCV and USDCV.
“At the end of the day, we were stuck because there was only the securities leg on the blockchain, and we didn’t have any cash leg on the blockchain,” Cabossioras said. “That’s why we started issuing a stablecoin.”
Institutional customers, Cabossioras said, prefer the security of a regulated bank to open-source, non-custodial-defi protocols.
“In everyday life, anyone – individual, medium or large company – we want to have a trusted party,” Cabossioras said. “We don’t want to keep our assets in our private wallets, in our safes at home. We want to delegate that security to a third party. And that’s why custodians or banks still have a future.”
