1/ 2021 was the first year of the @BanklessHQ DeFi mullet thesis playing out.

Fintech in the front, DeFi in the back.

A thread on the 5 most important CeDeFi projects in 2021 and what to expect for 2022 👇

newsletter.banklesshq.com/p/the-defi-mul… @RyanSAdams @TrustlessState
2/ The most spectacular event was the French banking giant @SocieteGenerale (6th biggest bank in Europe) submitting a public governance proposal on MakerDAO to have their new bond tokens approved as collateral for $20m in DAI.
coindesk.com/business/2021/…
@MakerDAO @RuneKek
3/ Having a multinational bank engaging on a DeFi governance forum with a DAO and a bunch of pseudonymous Maker contributors is mindblowing - and surely won’t pass unnoticed by other banks.

This is probably the largest banking DeFi adoption step to date.
4/ Another big CeDeFi action in 2021 relates to fintech companies using stablecoins & public blockchain rails for payments & settlement.

VISA settles through USDC with @cryptocom & builds a L2 payment network for stablecoin settlement.

decrypt.co/82233/visa-uni… @cuysheffield
5/ And @novi announced to start a payments pilot with USDP (on #Ethereum) instead of using their permissioned Libra blockchain.

DeFi payment rails with fintech frontends will explode in 2022.

techcrunch.com/2021/12/09/wha…
@davidmarcus @PaxosGlobal
6/ However, the most consequential CeDeFi projects in 2021 relate to lending & borrowing, the CeDeFi use case I expect to grow the fastest in 2022, even outpacing CeDeFi payments.
7/ First & foremost, @coinbase just launched a DeFi yield product for non US customers, depositing assets into @compoundfinance.

This step is huge and should alarm all banks around the world.
8/ Savings interest rates in banks are around zero or, in some place, even negative.

With average 2-6% stablecoin yields on Compound, more and more bank deposits will make their way into these kind of CeDeFi products.

@rleshner @brian_armstrong
bloomberg.com/news/articles/…. #DeFi
9/ Meanwhile, @AaveAave, the biggest DeFi lending/borrowing protocol in terms of TVL, has launched Aave Pro for institutional lending in cooperation with @FireblocksHQ (centrally responsible for KYC/AML/compliance).

finance.yahoo.com/news/aave-debu… @StaniKulechov @0xJim
10/ Shortly after, Switzerland’s @WeAreSEBA bank announced its intention to use Aave Pro and shared a governance post to get whitelisted.

Wouldn’t be surprised if we see hundreds of banks/ institutions connecting to Aave Pro or Compound Treasury in 2022.

theblockcrypto.com/linked/128281/…
11/ The 5 most important DeFi steps in 2021 at a glance

Societe General 🤝 MakerDAO
VISA 🤝 USDC
NOVI 🤝 USDP
Coinbase 🤝 Compound
Aave 🤝 Fireblocks

So what’s next in 2022?
12/ CeDeFi lending products will likely explode.

In times of inflation and zero interest rates, every bank & fund (sitting on billions of capital without with limited investment opportunities) around the world is eyeing the current CeDeFi developments very closely.
13/ For DeFi lending platforms, these potential liquidity & revenue sources are massive, and I expect most of the teams to continue to be willing to concede some degrees of decentralization in order to attract that.
14/ I also expect CeDeFi payment rails to further accelerate.

But due to the required network effects for those use cases to thrive, I expect these to scale more slowly at first, and to explode at a later stage at a certain tipping point of mass adoption.
15/ Due to regulatory/compliance questions & higher technical/operational risks & complexities, other CeDefi use cases like DEX trading, derivatives, insurance, prediction markets will probably need more time.
16/ Overall, I am bullish on the @BanklessHQ DeFi mullet thesis in 2022.

Long term, I agree with @twobitidiot that more & more DeFi TVL will institutional and also kyc’d or tied to some other form of identity or reputation, opening up further opportunities (credit scoring etc.)
17/ But I might be wrong and CeDeFi traction faces some potential risks and barriers for further adoption. Let me finish with a quick overview of those.
18/ Regulatory risk.

CeDeFi adoption will force regulators to scrutinze DeFi even more closely. There is a reason why Coinbase doesn't offer its Compound yield product in the US.

Regulators might step in even more aggressively in 2022.

techcrunch.com/2021/09/20/fol…
19/ Decentralization risk.

A key balance has to be found between institutional adoption and sufficient DeFi decentralization. Without decentralization, DeFi becomes a mockery.
20/ Governance risk.

With big institutions acquiring relevant stakes in DeFi projects and governance tokens, the risk of governance attacks becomes more pressing.
21/ Reputation/hack risk.

With total DeFi exploits and hacks of over $700m in 2021, there is always the risk of having large scale user funds stolen or hacked.

Should that occur to CeDeFi customers on Coinbase, I wouldn’t be surprised if they stopped the product entirely.
22/ Competition of Non Custodial wallets.

The fintech USP is the frontend, the intuitiveness and simplicity of the UX layer.

If wallets get good enough at that, a growing number of users might decide to go wallet in the front, DeFi in the back directly.
23/ That is our goal for the @UnstoppableDeFi wallet - to be launched soon. To be as smooth & accessible as mainstream fintech applications.

However, I rather expect CeDeFi and wallets to grow hand in hand in the foreseeable future.

/END

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More from @paddi_hansen

4 Oct 21
1/
Germany implements FATF travel rule for crypto and adopts new crypto transfer regulation.

Although there are small improvements compared to the initial draft, this is a perfect example of how regulation in the crypto space should not look like

👇

tittlepress.com/crypto/1190480/
2/
Since October 1, CASPs (crypto asset service providers, i.e. exchanges, custodians etc.) in Germany have to comply with the new regulation. That means they have to record & exchange information (name, address etc.) about the originator & beneficiary of every transaction.
3/
When transacting with unhosted/non-custodial wallets, they are also asked to collect that information, unless they can assure the traceability of the transaction in some other way.
Read 13 tweets
19 Aug 21
1/ Why didn't market prices react to the terrible crypto provision in the infrastructure bill in the US?
IMO, because the main signalling was ultra bullish. Crypto has become a political force. And, frankly, we have a lot to learn from that in Europe.
wsj.com/articles/bitco…
2/ How the crypto industry was able to organize itself and make its voice heard in DC was one of the most bullish long term signals ever. Many see political and regulatory headwind as one of the major long term risks: “What happens if politicians just outright ban crypto?”
3/ The industry’s capacity to delay this bipartisan, $1 trillion dollar bill – probably the largest legislative project during the Biden-administration – over a "mere" tax clause shows how implausible & unfeasible such a political threat has become. There are several reasons why
Read 11 tweets

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