DeFi and the Real World: A trust issue
Scaling Open Finance beyond Crypto
The last few days have seen a lively debate around the risks and benefits of including diversified real-world assets in Maker’s Multi Collateral Dai (MCD) when it launches. At the core of the debate is the question of whether assets that depend on the legal system for custody and security should be included as collateral in a decentralized system.https://twitter.com/RuneKek/status/1176289085914173440
Opinions are divided between those inclined towards allowing these assets in order to increase liquidity and stability of Dai, and those who view this as an unnecessary risk of outside dependencies. At Centrifuge we are convinced that including tokenized real-world assets as collateral for Dai is key for Dai’s long term stability and adoption.https://twitter.com/rob_mose/status/1177482712891838464 Why are Real-World Assets important for Open Finance?
Decentralized and open finance aims to bring transparency, cost-efficiency, speed, and accessibility to an industry that has traditionally been opaque with tough barriers of entry.
Currently, the decentralized finance space faces two main challenges: stability and volume.25th of September was an interesting time in the Dai market (Source: https://dai.stablecoin.science)
Firstly, the people and projects using and building on Ethereum are subject to the inherent volatility of the ecosystem; which swings for anything from critical bugs to whales exiting a large CDP (see: the 5% crash in Dai that happened last week).Correlation in crypto assets is still an issue
With MCD the subjectivity to volatile crypto assets as collateral is mitigated through diversification. A diversified pool of assets with different risk parameters will counter some of the inefficiencies of ETH over-collateralization and would increase the overall volume and value. However, if the only collateral added to MCD are crypto...