Defi: A current institutional approach finance in 2021

A current institutional approach to decentralized finance (Defi):

Institutional investors and regulators have strict standards for financial technology. At the end of the last decade, the approach has largely fueled institutional interest in decentralized financial technologies.

In recent years, however, institutional involvement in decentralized finance has increased dramatically. Through investments, partnerships, and their own internal blockchain projects, organizations like JP Morgan and Goldman Sachs have stormed the world of Defi and Web3 applications and given them new credibility.

Here we look at how DeFi’s institutional approach has evolved, some of the organizations that are at the forefront of its evolution, and how they plan to implement the technologies.

Institutions quietly followed this space for years and then moved on

In late 2019 and early 2020, researchers appointed by Fidelity Digital Assets surveyed nearly 800 institutional investors in the U.S. and Europe about their attitudes toward digital assets in general.

Although these investors have historically been ‘on the sidelines due to the perceived risks associated with digital assets, Fidelity writes, more than a third of respondents (36%) say they are currently investing in digital assets. This is an increase of 22% from last year’s poll, an increase of about 64%.

The jump of 64 percent is best understood as an indication of a broader trend. Investors often become familiar with Defi after considering digital tokens an asset class. It is the passing conversation that ultimately leads people to concepts such as uninteresting financial markets.

Institutions have followed the same path and it appears that 2020 was the year of institutional importance for true and dedicated involvement in Defi applications. This is the biggest story behind Fidelity’s annual jump of 64%.

In the spring of 2021, the Defi market will see ‘funds, trading companies, and centralized performance platforms that maximize liquidity’, wrote Joshua Greenwald, risk manager at Uphold Asset Management, in April 2021.

With the total value added (TVL) on Defi reaching $ 50 billion (and $ 40 versus $ 50 since early November last year), it is clear that the market has surpassed amateurs and early adopters. Greenwald wrote.

Of course, institutions know how to soften their expectations when money begins to flow freely. After all, there is no significant resilience test of major Defi protocols or systems as a whole, say Jai Massari and Christian Catalini, partner of the law firm Davis Polk & Wardwell LLP and chief economist of the Diem Association.

“It is unclear what will happen to the interconnected protocols if one or more of them experience severe market price disruptions or large-scale technical disruptions,” Massari and Catalini wrote in May 2021.

A cautious optimism guides your approach today

Although institutional investors are clearly interested in Defi, they are only beginning to understand how to use this technology alone.

In May 2021, Mariana Gomez de la Villa, leader of the ING blockchain, told the Coindesk Consensus 2021 audience that the bank “has the ability to innovate to create new asset classes”.

Paul Brody, who leads the EY’s global blockchain initiatives, compares DeFi’s current development to cloud storage in 2006.

“Just as cloud storage can suddenly provide infinite storage capacity when it joins an existing application, Defi has done the same for financial operations,” he wrote in June 2021.

Do you want to buy and sell dollars? The tablecloths can be used anywhere. Do you want to start a loan business? You do not have to create your own stable currency because you can use all available digital currencies. ‘

Interestingly, Brody posted this article a few weeks after EY announced a new $ 100 million investment in its blockchain research and development.

Everyone learns and develops their skills. However, some organizations are further away than others.

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