The long-term value of decentralized finance (DeFi) depends on its ability to transform the back-office operations of global banking institutions rather than providing alternative business environments, according to asset management and banking industry executives.
Speaking on a panel at the Proof of Talk conference in Paris, the executives said traditional financial institutions are eager to adopt blockchain technology, but that this is unlikely given weaknesses in on-chain security, particularly in bridges that connect different blockchains.
In April, breaches were reported 27 days out of 30, prompting CertiK CEO Ronghui Gu to describe it as DeFi’s worst month in four years. Drift Protocol and Kelp Dao alone were hacked by North Korean cybercriminals in exploits that cost the two lenders nearly $600 million.
“I don’t think we’ll see growth in DeFi until we solve the first problem…the hack problem,” said Maja Vujinovic, CEO of investment and advisory firm OGroup. “I think it’s an absolute problem until we fix the bridges. I don’t think DeFi grows outside of the degen DeFi community…until they probably fix a whole stack.”
His comment echoes Ben Nadereski, co-founder and CEO of Solstice, a DeFi yield protocol based on Solana, who told CoinDesk in an interview that DeFi’s growth is being held back by the onslaught of exploits, a failing he blamed on developers frequently building innovative code while not paying enough attention to fundamental capital management responsibilities.
Working on a fix
Stéphanie Cabossioras, head of global strategy and policy at Societe Generale Forge, said traditional banks are already working to address these structural gaps.
She highlighted the company’s track record in tokenizing structured products and green bonds on public blockchains. For these digital assets to work, she said SG-Forge needs to fix the cash settlement layer by developing its own regulated stablecoins, such as EURCV and USDCV.
“Ultimately, we were stuck because there was only the securities part on the blockchain, and we didn’t have a treasury part on the blockchain,” Cabossioras said. “That’s why we started issuing a stablecoin.”
Institutional clients, Cabossioras said, prefer the security of a regulated bank over open-source, non-custodial DeFi protocols.
“In everyday life we want to have a trustworthy person, whether it is an individual, a medium or a large company,” Cabossioras said. “We don’t want to keep our assets in our private wallets, in our safes at home. We want to delegate that peace of mind to a third party. And that’s why custodians or banks still have a future.”
