AMA Recap: The Transition from CeFi to DeFi

Prior to launching KTX.Finance (KayTeeX) Testnet Round 1, KTX is privileged to be invited to an AMA (Ask Me Anything) in the Twitter Space with couple of veterans in the space who started as early as 2013. The AMA was jointly participated by @kesterwu from @BytetradeLab, @OuroborosCap8, @BenYorke from @WOOnetwork, @Ja_Brann from @ResearchKronos, @0x_Arjun from @OrderlyNetwork and @sohan_sen1 from @tradeparadigm and happened on Nov 29 Tuesday at 10p.m UTC+8.

The AMA was well received with more than 990 listeners tuned into the conversation. KTX.Finance (KayTeeX) would like to do an AMA recap, especially for anyone who could not participate.

Key Takeaways

• Two major technical challenges that stimy the growth of DeFi: (1) steep learning curve and (2) scalability.
• Anonymity of project founders impede growth.
• We are moving in the right direction: the industry has shifted from questioning whether regulators would ban cryptocurrencies to how can more robust systems be built.
• Adoption of digital assets by non-financial institutions like Nike and Starbucks help to build trust among those unfamiliar to the space.
• Biggest hurdles to institutional adoption are namely: (1) security risk and (2) regulatory risk.
• Self-Custody and Decentralized protocols will help to regain trust.

Panelists

• Kester from ByteTrade Lab, a Web 3.0 OS builder, incubator and early-stage investor aiming to return data ownership to users.
• Kevin from KTX.Finance (KayTeeX), a decentralized derivatives trading protocol.
• Ouro from Ouroboros capital, well known for his twitter personality @OuroborosCap8
• Ben Yorke from Woo Network, a leading player within the DeFi space involved in both CeFi & DeFi products.
• Jason Brannigan from Kronos Research, a leading Web 3.0 market maker.
• Arjun Arora from Orderly Network, a DeFi middleware provider.

Challenges to DeFi

There are two major technical challenges that stymie the growth of DeFi: (1) steep learning curve and (2) scalability.

The onboarding process is difficult, and DeFi is not as fast as CeFi. The trade-off between decentralization and scalability was also mentioned, as decentralization can’t be achieved without sacrificing scalability.

Trust is a qualitative problem that needs to be addressed in order to regain adoption from retail users. It was also noted that this problem is not unique to the Web 3.0. Across many sectors, many rely upon “trusted” institutions to determine what is right and wrong.

The anonymity behind project founders is also a source of distrust within the industry. The fact that teams can “rug-pull” users and get away with it scot free is a plague in the industry. Having “doxxed” team members help to provide users with comfort that legal actions can be carried out on malevolent actors.

Institutional Adoption to accelerate the adoption of DeFi.

We have moved 10 steps forward and 9 steps back. But, we are still moving in the right direction.

The industry has shifted from questioning whether regulators would ban cryptocurrencies to how they can create more robust systems.

Additionally, adoption of digital assets by non-financial institutions like Nike and Starbucks help to build trust among those unfamiliar to the space.

However, the biggest hurdles to institutional adoption are namely: (1) security risk and (2) regulatory risk.

Institutional money is fearful of the unknown risks associated with smart contracts and CeFi will still serve as a bridge for institutions. That being said, CeFi institutions have to become radically more transparent and be crystal clear with risk control parameters.

Vitalik recently released an article regarding the proof of solvency for central exchanges, stressing the need for them to be transparent with their proof of liabilities (customer deposits) and assets (ownership of tokens). In particular, the cash balances that they are holding and how it is backed. Instead of placing their cash in a random bank account in the Cayman Islands, regulations should enforce that an equivalent amount of funds be held at a trusted custodian like BlackRock or BNY Mellon, along with proof of reserves, in order to promote trust and confidence.

Transparency will eventually become the norm and will extend to other participants like aggregators and lending platforms. Although, it is important to note that it may take longer for lending platforms to adhere to this standard due to the risk associated with extending loans.

Regulation would also be important to regain trust, but it could also have a negative effect if it is too draconian. The panel also discussed ways to improve the space without additional third-party regulations; one suggestion was more institutional adoption of crypto by small businesses, which would reduce the need for centralized counterparties in payments and settlements and help to increase the awareness of distributed ledger technologies in general.

Binance Monopoly

Increased transparency could lead to thinning margins and further consolidation within the CeFi space. A monopoly would not be beneficial for the industry and more resources are required to challenge Binance’s market share.

It is difficult for central exchanges to acquire external capital in the current environment, and Binance needs to inspire friendly competition in order to innovate.

Diversification is also more apparent than ever. Users would likely diversify across multiple exchanges in order to diversify counterparty risk. However, this increase in diversification could increase the barriers of entry to retail users.

Moving Ahead

Self-custody is definitely a move in the right direction to build user’s trust. However, self-custodian solutions requires a certain level of education for users that are not crypto-native. Mainstream adoption of DeFi will likely take a few years, and there may be an influx of projects into the DeFi space in the coming year. It is a long and arduous road ahead, but it is inevitable.

Given this pain point, Kevin introduced KTX.Finance (KayTeeX), a protocol that could alleviate some of these issues. KTX.Finance (KayTeeX) is launching a completely decentralized social trading platform where traders can take up to 50x leverage. KTX.Finance (KayTeeX) will be launching testnet soon on BNB Chain.

Connect with KTX.Finance

• Website: https://www.ktx.finance
• Twitter: https://twitter.com/KTX_finance
• Telegram: https://t.me/KTX_officials
• Discord: https://discord.gg/zwWnGEUWUy
• Deck: https://docsend.com/view/jvqe6srw9dvtid4y