The Wharton School of Business at the University of Pennsylvania is consistently ranked as one of the best business programs in the United States and the oldest university business school in the world. In the new Blockchain and Digital Asset Project report, DeFi Beyond the Hype, Wharton School attendees detail the ins and outs of DeFi and conclude that DeFi has “the potential to transform global finance.”
DeFi Beyond the Hype: overview
The Wharton report, prepared in collaboration with the World Economic Forum, provides an excellent overview of the current state of DeFi. On the front page of the 20-page brief, the team admits that despite the growth of DeFi services from less than $ 1 billion in 2019 to over $ 80 billion today, DeFi, as we know, is still "in its early stages." ... p>
Wharton employees, led by Professor Kevin Werbach, divide DeFi services into six different tiers: stablecoins, exchanges, loans, derivatives, insurance, and asset management. The report goes on to detail each of these disparate elements and how DeFi works in them, but acknowledges that at times the boundaries between them can blur. Werbach and his team provide a detailed, fundamental overview of all the key parts of the DeFi machine (wallets, oracles, digital assets, etc.).
The team also identifies four “defining characteristics” of DeFi: interoperability with financial services, transactions and settlements with minimal trust (ie, open-source blockchain integration without permission), non-storage design, and an open, programmable and composable architecture.
TURNING TO DETAILS
The report takes time to look at the important details that make DeFi so desirable for some, such as governance tokens and other liquidity-boosting incentives. It also examines the costs and benefits of this decentralization and outlines the fine lines between centralized governance, partially decentralized governance, and decentralized governance.
In addition, the report addresses DeFi opportunities and challenges, although it is somewhat incomplete. The opportunities are enormous, and include aspects such as reducing friction and transaction costs, improving accountability, improving market access and increasing the inclusiveness of financial services. However, they are not without their inherent challenges, such as throughput, operability on blockchains (and with traditional services), regulatory issues (especially in the current environment), and more.
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THIS IS A WHARTON WRAPPER
The detailed report is a condensed full volume of DeFi in twenty thick pages. However, in addition to simply presenting a broad understanding of what DeFi is, the Wharton team also devotes time to protocols like Uniswap and SushiSwap, asset pool protocols like Compound and AAVE, and more.
Wharton (and growing academic institutions) continue to demonstrate and share their vision for DeFi and blockchain technology as they evolve. As the report aptly states, "tools are emerging to make it easier for users to interact with and across DeFi services."
The report concludes that “DeFi will ultimately succeed or fail depending on whether it can deliver on its promise of providing financial services that are open, minimized, and non-custodial, yet trustworthy. ". It is safe to conclude that many believe that DeFi is well on its way to achieving just that.