The DeFi industry has experienced rapid evolution in its short history and continues to gain momentum as decentralized infrastructure like Chainlink’s oracle networks support more advanced use cases for hybrid smart contracts. During SmartCon 2022, Chainlink Labs Developer Advocate Manager Harry Papacharissiou offered a glimpse into the future by presenting an abridged history of DeFi from which he derived several key predictions about what’s on the horizon.
Cross-Chain DeFi
With Chainlink oracles deploying on more blockchains and layer-2s, DeFi is no longer exclusive to Ethereum. Chainlink’s Cross-Chain Interoperability Protocol (CCIP), expected to launch in 2023, is aimed at advancing today’s multi-chain ecosystem by serving as an abstraction layer that enables a single application to optimize multiple blockchains.
“The future is cross-chain, not multi-chain,” said Papacharissiou.
Tokenized Real-World Assets
Papacharissiou explained why stablecoins, which are on-chain assets pegged to real-world currencies like the U.S. dollar, have played a large role in DeFi’s adoption. “You don’t need to keep pumping money into the system to incentivize people because they are pegged to an underlying asset,” he said.
He predicted this concept will broaden to include nearly everything of value that can be traded in the real world, such as bonds, cars, houses, art, and crops. Tokenizing these real-world assets would yield benefits such as better liquidity, increased transparency, and fractionalized ownership.
Privacy-Preserving Oracles
Expanding DeFi’s utility requires solutions that allow users to verify private information without revealing it publicly on-chain. Papacharissiou said advancements in privacy-preserving oracle technology such as Chainlink’s DECO, which uses zero-knowledge proofs to authenticate information without publishing it on-chain, will enable use cases such as confirming borrowers’ creditworthiness while protecting their personal information.
The Convergence Of TradFi And DeFi
Traditional finance (TradFi) institutions and banks will likely continue to experience an increase in customers who want access to the benefits of DeFi. While the shape this merge will take is still yet to be seen, Papacharissiou said, “The convergence of TradFi and DeFi is definitely something that’s going to come.”
He believes that decentralized finance will ultimately become so ubiquitous that most people will know it simply as “finance.” He concluded, “When you change the way the world works to use these strictly superior blockchain-based systems, that becomes that new world.”
Watch Harry Papacharissiou’s full presentation on the future of DeFi.