This Week in DeFi – October 1



To the DeFi community,

This week, financial connectivity provider Fireblocks submitted a proposal to Aave governance seeking to become the first ‘whitelister’ for the Aave Arc institutional DeFi offering. Similar to the Compound solution, Compound Treasury, Aave Arc will allow traditional financial institutions access to a siloed pool of liquidity using existing smart contract architecture, with the aim of providing the regulatory compliance big banks and other institutions need before interacting with the industry. Partnerships with service providers like Fireblocks will help ensure all users have met the required KYC/AML and other due diligence standards before participating in Aave Arc.


Daily active users on Polygon overtook those on Ethereum for the first time this week, as demand for blockchain throughput continues to drive demand for scaling solutions of all types. Polygon largely captured the ‘first mover’ advantage in the L2 race, but other competitors like Optimism or Avalanche are likely to see similar crosses in active users in the coming weeks and months.


One of the earliest ‘blockchains for finance’, R3 announced this week the enterprise blockchain Corda will develop a proof of concept for a hybrid DeFi solution, aiming to retain enough privacy to prevent front running and attract institutions while still living the DeFi ethos. While even PoC release is many months off, the R3 solution will use proprietary nodes for transaction processing and privacy, with on-chain data becoming available after a delay to maintain transparency.


And Société Générale (SocGen), a French bank on the cutting edge of blockchain and decentralized tech, submitted a proposal to MakerDAO governance to swap bond-backed tokens for a $20 million DAI loan, on of the first and certainly the largest interactions yet between real-world financial institutions and a DeFi protocol. The deal is still in the works and will require a multitude of delegated agents to carry out financial and legal duties, particularly on the MakerDAO side, but seems likely to move forward and will represent a foundational moment for bridging DeFi and traditional finance.


A big week for institutional adoption of DeFi, to say nothing of the news that Visa is committed to building a universal cross-chain payments solution. Such entreaties are an exciting sign of adoption, but raise interesting questions as well – as Ethereum picks up momentum as the de facto chain for institutional adoption, will it retain its place as the darling of decentralized, permissionless, censorship resistance advocates as well?

What may be even more interesting is that institutions are taking the plunge and interacting with DeFi protocols at the application layer, using proposals and working through the decentralized governance system just as any other member of the governance community; the bravest and furthest-ahead institutions are meeting the DeFi community on its own ground. And while solutions like permissioned liquidity pools and other tactics to offer regulatory certainty will be marked by some as unacceptable ideological concessions, the liquidity such programs will bring to the overall ecosystem will be a huge boon for the DeFi industry long-term.

DeFi is well on its way to breaking out of the digital realm and becoming a part of the real-world economy. If you’re reading this you’re an early adopter, helping build the future of finance. Let’s do our best to welcome these new institutional frens (and their liquidity) and take this ecosystem to the next level.


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