This potentially disruptive sector must set aside some of its lofty ideals, for now, and focus on financial solutions with demonstrable global demand and adoption.
Credit risk is part of just about every financial asset in traditional markets, but not so in DeFi. Everything from mortgages to CME corn futures, German bunds and Amazon gift cards has an embedded credit component . In DeFi, however, your credit record is entirely irrelevant. Your borrowing power in AAVE, for example, is determined only by the value of the collateral you put in. If it falls beyond the threshold and the smart contract functions correctly, your position is liquidated.
Automating complex payoffs is exactly the type of meaningful application that can put it on a sustained growth path. For reference, the global volume of structured products, like autocallables, was estimated at around $1.5 trillion in 2021, led by Asian investors, according toDeFi endured countless hacks, rug pulls, de-pegs and regulatory scrutiny, and it will surely outlive the current downcycle in trading volume.
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