Preface: DeFi is a new stage of financial development. Its early days, but it could have a big impact on the future of finance. How does it differ from traditional banks and fintechs in terms of community engagement? What are its strengths and weaknesses? The author of this article is Steven Ehrlich, translated by the Blue Fox Notes community Leo.
As the CEO of the non-profit Wall Street Blockchain Alliance, I am very interested in new trends in the encryption field, such as DeFi (distributed finance, or decentralized finance), and want to understand how their creators and operators Build a strong stakeholder community. With hundreds of thousands of people across all aspects of financial services, DeFi will have a significant impact on how we organize in 2019 and beyond.
While there is currently no unified definition of DeFi, the term is often used for traditional financial applications and services built on the blockchain, such as payment methods, storage accounts, lending products, wealth management, and more. DeFi provides many use cases, such as allowing participants to transfer money instantly (24/7/365) around the world, or earn interest by holding encrypted assets, because many participants are trying to Lay the foundation for a diverse financial system.
At the same time, while blockchain technology and its appealing ideology are a huge incentive for users dissatisfied with the current financial system, the decentralized nature that encourages users to enter the DeFi space may actually limit it. The long-term potential of some platforms.
why? Because DeFi-based products naturally limit the touchpoints and interactions between customers and product providers, which may lead to reduced product loyalty and cross-selling capabilities. (Blue Fox Notes: This is hard to say, because it is still in the early stage after all, maybe because of the independent participation of users and a better user experience, does it have more brand loyalty? There is still observation on this point.)
To investigate this further, I spoke to two leaders in the DeFi-related blockchain space, BlockFi CEO Zac Prince, and MakerDAO Foundation Chairman and COO Steven Becker. The overall impression of the discussion is as follows:
DeFi companies are keenly aware of the efforts of traditional banks and fintech companies to create customer loyalty and reach their customer base, and DeFi companies are actively studying these models to try to determine how to apply these strategies to their models.
The DeFi community is far from monolithic, and each project should be evaluated independently.
The future success of many products and services will depend on how important decentralization is to individuals, especially if there is a visible trade-off between decentralization and customer value.
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FinTech Challenges
This is a very important discussion today, as the cryptocurrency space is actively competing with well-known startups such as PayPal, Square, SoFi (short for social finance), etc., which provide easy-to-use products and have accumulated a large number of customers group.
Taking it a step further, these companies are now even offering cryptocurrency trading services. SoFi in particular wants to take this discussion seriously, as its name suggests it is very focused on building brand loyalty and engagement with its customer base.
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The Blockchain Response - BlockFi
BlockFi’s goal is to leverage a variation of the SoFi playbook, and in the words of BlockFi’s CEO Zac Prince, “successfully implement a strategy that’s ideal for delivering as much value as possible to your customer base and then try to create a follow-up They have a very tight relationship.” However, BlockFi is building on the blockchain technology stack to achieve this.
Its a strategy Mr. Prince is well aware of, since he was a SoFi customer. As he discussed it with me, he told a story that when he first signed up for the service, SoFi sent him a bottle of wine and some cheese, which he shared with his wife. He remembers it made him feel like “this is a different financial company” and, “I have far more positive emotions about their brand than any other financial company.”
In order to create the same positive feelings towards BlockFi, the company has actively engaged with customers and the wider community through mechanisms such as chat tools on its website and staying active on social media (Telegram, Twitter, Reddti, etc.). It also issues quarterly customer surveys and holds regular meetups for customers in major U.S. cities. BlockFi isnt currently paying much attention to cross-client communication, but its something the company will consider in the future.
However, the most interesting part of the discussion with Mr. Prince was that although BlockFi is often referred to as a DeFi company, he does not consider it a company. When asked why, he noted: We dont see ourselves trying, and certainly not doing anything in the decentralized build at this stage. On the other hand, it would be better to have a traditional corporate structure.”
He also pointed out that the centralized approach provides the ability to quickly process things, such as rapid iteration of new products, even in beta form, which is difficult to achieve efficiently for a platform that runs entirely on smart contracts and has little room for error.
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The Blockchain Response - MakerDAO
Compared to BlockFi, MakerDAO is often considered a poster child for the DeFi movement. In discussions with Steven Becker, Chairman and COO of the MakerDAO Foundation, he was convinced that the decentralized nature of the platform would not only attract new users, but also create a diverse, robust, sticky, stakeholder-engaged community, which will ensure its long-term success.
My discussions with Mr. Becker have yielded three main themes:
First, despite their slower nature, decentralized systems generate a stronger and more engaged customer base because they are highly transparent in terms of risks and operations. He compared MakerDao to the setup of fiat-backed stablecoins, which grow faster but operate opaquely, making it difficult for customers to really understand their operations.
Second, DeFi platforms have social benefits embedded in their DNA, making them more attractive to customers in the long run. Specifically, Mr. Becker noted, “There is a huge difference between social finance and decentralized finance. In short, social finance tries to extract or try to pull social influence, whereas in this respect, decentralized finance is actually in the A very good position to drive that impact.
Third, when discussing community engagement, Mr. Becker made it clear that he believes stakeholder engagement has been strong so far. Stakeholders include holders of MKR’s governance tokens, Dai holders, Market makers, CDP creators, etc., but there is still a long way to go. He emphasized that today these stakeholders are too focused on specific use cases. For example, CDP users are often interested in lending Dai to place larger bets in the crypto market, and Dai holders often act as liquidity providers.
Going forward, he wants to “have these different categories of stakeholders all very diverse, I mean, think about their use in the system. The more diverse the Dai holders, the more diverse we have The same is true for MKR token holders. The more diverse MKR token holders are, the more diverse their incentives will be.” As an example, he would like to see a larger Dai holder Participate so that holders can use the Dai stablecoin for more everyday transactions.
The hope and expectation is that once supply and demand are balanced, this new level of participation will emerge and stability will not need to be adjusted often or significantly. At this point, there are other forms of risk that need to be discussed during the weekly risk and governance calls, which should involve a more diverse and engaged stakeholder group. These include CDP risk (which allows people to borrow Dai against other forms of assets besides ETH), and what he generally refers to as exogenous risk. There will always be new topics that will occupy the thinking of that period. It just so happens to be stabilizing fees, Mr Becker said.
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It is clear from these discussions that there is no one-size-fits-all approach to building engaged communities in the DeFi and blockchain ecosystems, but for leaders in this space, community engagement is a priority. This is especially true given the competition from traditional fintechs. Key players and stakeholders will need to make decisions about the degree of centralization they are comfortable with, ultimately weighing the benefits of speed and new product iterations against the opacity and need for third-party trust.
