This week, Aave Founder and CEO Stani Kulechov and Chainlink Co-Founder Sergey Nazarov hosted a Clubhouse fireside chat about the future of Aave’s open source DeFi protocol, Chainlink’s decentralized oracle networks (DONs) and the entire DeFi economy.
The discussion highlighted key features of Aave’s interest rate protocol for various cryptographic assets as well as how Chainlink’s DONs provide essential services for hybrid smart contracts. Kulechov and Nazarov agreed that the evolution of Aave and Chainlink has been in sync with the evolution of the DeFi industry as a whole.
Where is DeFi right now?
“We’re very early in DeFi,” Nazarov said. Last month on Yahoo Finance, he described a gradual path toward decentralization as consumer demand for DeFi rises. At the time that segment was filmed, DeFi’s TVL had grown from $1 billion to nearly $60 billion TVL in about a year. Today, DeFi’s TVL has grown to nearly $80 billion. “If you add a zero to that, it would be completely within reason,” Nazarov said.
Creating more trust-minimized services that power more advanced hybrid smart contracts is already underway with services like Chainlink VRF (Verifiable Random Function). “The really exciting thing will be when people start building like web developers build,” Nazarov said. He predicted that smart contracts will come to define the DeFi industry, even more so than tokenization, within the next few years.
“Smart contracts will improve finance as we know it today by removing the inefficiencies of traditional finance,” Kulechov agreed. DeFi can eliminate settlement systems that take days, problems reaching contractual agreements between counterparties and the costly, time-consuming process of resolving disputes through court systems.
“What we love to do is innovate,” Kulechov said. “What I hate about traditional finance is it’s a broken system.”
He explained how traditional finance makes it difficult for builders to innovate because every step requires permission. “In DeFi, the networks are completely open; they’re permissionless. This permissionless nature allows anyone to build anything.”
More innovation leads to what Kulechov described as a cycle of efficiency. “DeFi is very small still, but the reason we’re growing so fast is because there are so few boundaries on what you can do. When you have an idea, there’s no one stopping you. All of these new processes being built on top of Chainlink and Aave – that’s why both are growing so fast.”
Just as specialization built society, specialization is key to growing DeFi. Kulechov said Chainlink’s oracle solution enables Aave to focus on creating superior financial protocols. “Oracles are a very big part of what we’re doing, but by focusing on our part, we can build more, faster.”
When will DeFi will see mass adoption?
Nazarov said DeFi’s mass adoption depends on how and how quickly the world evolves. If there’s a global market correction, people will look to DeFi for solvency and transparency. If inflation becomes a serious problem, people will turn to DeFi’s superior yield. “There’s a fast case and a slow case,” Nazarov said.
“The key thing,” he emphasized, “is that the benefits are there and the benefits are easily accessible” for institutions, fintechs and banks to provide access according to user demand. “And user demand will be the deciding factor of when they are going to do that.”
“I think we’ve built one percent or less of DeFi,” Kulechov said. He and Nazarov agreed, however, that the financial industry will become substantially more decentralized over the next several years. Said Nazarov, “We’re seeing it happen literally before our eyes.”