Bringing DeFi to TradFi Is the Biggest Market Opportunity Right Now

Many people have stated that 2020 will be the year of DeFi. While I couldn't agree more, I think it is important to take a step back before we get too far into this new year and think about what that means exactly. Yesterday, I was part of a nice AMA on Telegram with the rapidly growing community at FinNexus, which is a project I'm helping out that intends to bridge the gap between TradFi and DeFi.

Most DeFi projects focus on creating new uses for existing crypto assets. The team at FinNexus (FNX) thinks there is a lot of room in the emerging DeFi space to create new uses for existing real world assets by using crypto technology. This perspective makes FNX wholly different from nearly all the great DeFi projects that are currently out there. We all love Compound, Uniswap, MakerDAO, bZx, and all the others, but if you really analyze the suite of DeFi services that are currently available or under development there is really only a few business models out there so far.

If we're going to prove Consensys right (They wrote a blog post called "2019 Was the Year of DeFi and Why 2020 Will Be Too"), we need more innovation in DeFi business models.

By my count, there are currently only 4 DeFi business models out there.

First, there is the OG over-collateralized lending model pioneered by Maker. Now there are ton of these type of platforms out there. One might even say too many! Mimicry is the highest form of flattery. For some reason, people lump in BlockFi and Celsius Network into DeFi, even though for the life of me I can't understand why. The "De" in DeFi stands for "decentralized" and when you give up custody of your coins that to me is the threshold upon which, once crossed, you enter CeFi. Don't get me wrong. I'm down with these companies doing what they're doing and use BlockFi myself, but to call them DeFi, to me, seems a little disingenuous.

The second successful business model in the DeFi space so far are decentralized exchanges, usually called dexes. There are a variety of high-quality dexes out there like KyberSwap, Bancor Network, IDEX, ones based on the 0x Project and many more on the way.

It is these two business models that make up the majority of what is called DeFi today.

But that doesn't mean that these two business models will always dominate the DeFi space. The blockchain industry is about the most quickly developing, rapidly iterating economic sector out there. New business models are bound to arise that put the true power of DeFi into the hands of more and more individuals.

The on-chain synthetic assets business model is still under-pursued. Synthetix pioneered the use of its own utility token as collateral for making other on-chain assets. In their model, they call them Synths. We're likely to see a lot more projects using this kind of model in the future, if only because the SNX token, up around 20x, was one of the best performing coins of 2019.

Recently, there has been much made of the automatic market maker (AMM) model pioneered by Uniswap and recently furthered by THORchain, which I wrote about in a previous SteemLeo blog post. Uniswap, which in the past 4 days has seen more than 25,000 ETH added to its liquidity pools, has been absolutely killing it. THORchain is still in beta but will not be restricted to just Ethereum-based assets like Uniswap.

But that’s it! Those four business models - lending, dex, synthetics, and AMM - are the extent of DeFi so far. To be honest, there is just so, so, so much more to explore.

Those great DeFi projects are almost all exclusively focused on crypto-only assets. What I am spending my time on - as Blockchain Lead at Konstellation Network and Strategy Advisor at FinNexus - is not about crypto-only assets.

Konstellation hopes to build an on-chain ecosystem that will make it easier for its existing partners (mostly large financial institutions) to invest in and benefit from blockchain technology. FinNexus aims to bring a suite of DeFi tools to TradFi and vice versa, to infuse the blockchain space with more real world TradFi assets.

There’s a huge market opportunity out there that almost no one seems to be building toward. And that's to help build bridges between TradFi and DeFi. Because, yes, I think DeFi will get to $10 billion in total value locked-up (TVL) this year (across all chains, not just ETH), but TradFi is measured in trillions. Regrettably, TradFi is going to be a market that dwarfs the DeFi space for a long time. It is what it is.