Why DeFi Could be a Disruptive Force in Finance Once the Interoperability Challenge is Solved

Financial markets have taken a great hit this year, with inflation and debt levels on the rise. But as the famous saying goes ‘in the midst of chaos, there is also opportunity’, the launch of Bitcoin in 2009 paved the way for an entirely new era of finance; decentralized markets. While it has taken over a decade for DeFi innovations to become a reality, this nascent crypto niche now enjoys over $52 billion in total value locked (TVL). 

Could DeFi be the way out of the current financial mess across the globe? Most crypto natives would argue that it is indeed the future; similarly, a fair share of traditional diehards believe DeFi is another passing fad. That said, recent trends indicate that DeFi is slowly becoming a darling in the retail and institutional market, with traditional banks such as JP Morgan softening their stance on digital assets. 

“Decentralized finance and blockchain are real, new technologies that can be deployed in both public and private fashion, permissioned or not.” – JP Morgan CEO, Jamie Dimon. 

DeFi’s Interoperability Dilemma 

As much as DeFi is a likely game-changer, there is much to be done before it can compete for the capital in legacy markets. Most notably, the existing innovations in this space are often limited to a single ecosystem, Ethereum currently leads the pack with a 55% market share of the TVL.  In other words, DeFi protocols are operating in siloed environments, which beats the logic of permissionless access to financial services under a unified market. 

Assuming an investor has their money on an Ethereum-based DeFi application, the process of transferring the funds to another ecosystem like Avalanche or Solana is not as straightforward. This is a big hurdle especially for newbies who are joining the Web 3.0 bandwagon. In fact, a good number of prospective DeFi stakeholders lose interest as soon as they realize how cumbersome it is to leverage opportunities across the board. 

On the brighter side, crypto innovators are always quick to adopt; the interoperability challenge is being addressed by several innovators in the industry. Some of the prominent solutions that have been launched in this line include Polkadot’s parachain, Cosmos Inter-Blockchain Communication Protocol (IBC) and the t3rn smart contract hosting platform. While the latter is the latest kid on the block, t3rn’s multi-chain infrastructure stands out from the rest. 

t3rn; The Open-Source Smart Contract Registry 

Before diving into the specifics, it is worth noting smart contracts are the pre-coded programs which are designed to operate as the middleman. Instead of relying on a broker or banker, DeFi protocols depend on smart contracts to automatically execute processes once the pre-coded conditions are met. However, until the launch of t3rn, most smart contracts were built specifically for one blockchain network. 

This smart contract hosting platform introduces a fundamental building block, one that unifies DeFi innovations under a single umbrella. Ideally, t3rn features a smart contract registry that can host diverse types of codes. Developers in the crypto ecosystem looking to create multi-chain products are flexible to contribute to the t3rn open-source repository, alongside additional perks such as remuneration anytime their code is executed by someone else. 

Should the world move to embrace decentralized markets, interoperability solutions such as the one offered by t3rn will be an integral part of the infrastructure. DeFi markets ought to offer the same utility to traditional finance, with an added advantage when it comes to self-governance and community incentives for contributing to the on-chain networks. 

Summary 

Financial market participants are currently in search of new solutions to disentangle themselves from the toxic nature of corporations and governments. With crypto assets having survived the uncertain times, it is time stakeholders put more consideration into their potential. Why suffer under the chokehold of third-party intermediaries when DeFi offers a peer-to-peer market environment? 

With decentralized ecosystems emerging as alternatives, the main focus should be fixing the underlying issues to attract more human capital and resources. At the core, innovators should make DeFi more interoperable and easily accessible to all. Solving this challenge will be big step into the future of finance.