Last week, Chainlink Co-Founder Sergey Nazarov joined Base Layer podcast host David Nage to discuss Chainlink’s universality within the ecosystem of Ethereum, other chains and layer-2s, as well as how centralized banks and fintechs should prepare to interact with DeFi protocols in the near future.
He asked Nazarov, “How should banks and fintechs really prepare to interact with DeFi?”
Nazarov spoke to what he views as “an underappreciated point” regarding Chainlink as the “decentralized services metalayer” that creates all of the various utilities – price data, weather data, randomness, advanced computation – spanning different chains and use cases, which DeFi protocols, crypto startups, banks and fintechs either need or will need in the near future.
This, he predicted, is because the centralized world of banks and fintechs will adopt DeFi for the same reason the world of blockchains gave rise to DeFi in the first place: user demand.
“These organizations exist and continue to exist and prosper on the basis of catering to user demand. They don’t cater to their own ideas of the world; they don’t cater to what they would like the world to be like; they cater to what their users want,” Nazarov said.
In the blockchain world, once users had custody of cryptocurrencies, the desire to earn interest with those assets naturally followed. “For years, the only thing you could get was a Bitcoin, period. Then you expanded to DeFi contracts because they provide yield and they provide interest on the assets you already own,” Nazarov said.
Likewise, centralized banks and fintechs acquiring cryptocurrencies today should plan to interact with DeFi protocols tomorrow.
“If DeFi isn’t a concern for banks, but they are feverishly getting custody solutions in place, then I think they’re missing a step,” Nazarov said.
“Basically, the biggest hurdle is custody,” he continued. Nazarov said that as soon as people know that they can earn 8% yield on a stablecoin versus 1% interest with a traditional bank account, “they don’t even need to know what a stablecoin is” to see DeFi as the obviously better option.
“It’s not rocket science to guess that that’s the next step.”
Nazarov believes that today’s DeFi protocols and the blockchain systems running those protocols are the same ones that banks and fintechs will use in the future.
“I personally think that the fintechs and banks won’t reinvent DeFi protocols; they won’t build their own blockchains, just like they don’t build infrastructure around the internet. They’ll just use the infrastructure that gives them the best result quickly because they’re going to need it quickly,” he said.
Nage agreed that this future could be a lot closer than industry experts might have predicted as recently as a year ago, when DeFi’s TVL was a small fraction of its current value.
“I personally can’t wait for the day to see J.P. Morgan offering their clients the ability to go on Yearn and earn yield from their assets,” Nage said. “That is a fascinating look into what the future may be – not in the very distant future, actually.”
Listen to Sergey Nazarov’s full conversation with David Nage on Base Layer Episode 210.