Core points:

Core points:

• DeFi lending is not creating credit, but maintaining credit;

• Although there are still many limitations in DeFi at present, the future innovation space of DeFi is still huge, which brings many possibilities;

• DeFi is designed for machines and requires the further development of communication technology and artificial intelligence to take advantage of it;

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1. DeFi development trend

Yang Zhou (Founder and CEO of PayPal Finance):

After talking about decentralization and centralization just now, we still have to return to our topic of this issue, DeFi and CeFi. So from your point of view, what are the more interesting developments in DeFi?

Wang Li (co-founder of PayPal Finance):

The source of DeFi should be Maker, which is essentially a mortgage loan. When you mention DeFi, it is all about deposit and loan business, and recently there are decentralized exchanges, and even some more complicated ones are doing some financial contract derivative contracts.

But everything remains the same. DeFi is actually copying some basic financial services and contracts to a certain public chain in the form of smart contracts. Whether it is transaction time value or space value, they are all assets on the chain. to finish. This is an ecology of all DeFi now.

Yang Zhou:

They moved the traditional contract to the chain, turning the past paper document into a so-called smart contract. In this regard, what are the limitations of DeFi?

Wang Li:

The limitations can actually be seen from the volume. In terms of volume, it is still relatively small, but its growth rate is very fast. Of course, there are some reasons for the wave of currency issuance.

The degree of decentralization of a project depends on your community and whether you have enough people participating. If there are more, your degree of decentralization will be higher. Since your size is very small and the number of participants may be very small, then your degree of decentralization must not be high enough.

DeFi creates credit through smart contracts. You don’t need to trust any counterparty. You only need to trust this contract, which reduces everyone’s trust cost.

These DeFi projects run on this relatively decentralized public chain, so in fact, there will be many problems in this infrastructure.

In terms of performance, a virtual cat game, or some relatively low-cost dust attacks, can paralyze the public chain for a period of time. Then the cost of some DeFi projects operating on it will actually become very high. ETH is currently in the process of expanding from POW to POS, so how DeFi will develop in the future is actually very uncertain.

Of course, with the delay of time and the improvement of public chain technology, this problem will be gradually solved.

Yang Zhou:

The points you just said made me think of two questions. The first question is the carrying capacity you mentioned just now. When, for example, stablecoins continue to be issued to 20 billion or exceed the market value of Ethereum, this is DeFi. As a bearing problem, dust attacks will become more frequent. This is on the one hand, and on the other hand, it is the process of so-called credit intermediation and credit creation.

In the case of good risk control, value is created by controlling risks, but because DeFi may be more about innovation, you often have conflicts between risk control and innovation.

The current DeFi project is more of a locking process, making DeFi a shrinking market. For example, the bitcoin you locked, or Ethereum, does not create value. This is actually contrary to traditional finance. It does not play the role of a credit intermediary, but plays a role of just putting this contract If it becomes an auditable, public, and open-source thing to ensure its credit, then it is not creating credit, it is just maintaining credit, so in the process, I think this is also a current bottleneck of DeFi , a limitation.

Wang Li:

And it also involves our liquidity issues, which are some of the current bottlenecks of DeFi in the deposit and loan business.

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2. The innovative advantages of DeFi

Wang Li:

I just talked a lot about the current situation of DeFi and the limitations of DeFi, but at this stage, from the perspective of innovation, DeFi is actually very fascinating, because the ultimate dream may be very big, which is to reconstruct the entire traditional financial system.

Finance is actually allocating resources to the most efficient place. It is a matter of improving the overall efficiency of operation. But finance at this stage is very inefficient, difficult to innovate, and unfair.

Yang Zhou:

So DeFi brings many possibilities, and the first thing that can be solved is the problem of fairness. That is, DeFi uses smart contracts. Maybe the future DeFi will be a more advanced form, which achieves the credibility of data and can make the participation threshold for everyone very low. As long as there is a network, you can participate.

So from this perspective, I believe there will be a lot of space in the future.

Yang Zhou:

Many people have been saying that the blockchain is a revolution in the relationship of production, but in fact we still believe in the words of Mr. Marx that productivity determines the relationship of production. Now why many blockchain projects or DeFi projects fail to land, I think it is still limited to the development of productivity. Our Internet technology or communication technology is not efficient enough, and the transmission speed is actually an important thing to ensure the operation of the blockchain. Another aspect is artificial intelligence.

The benefits of DeFi, the first is to lower the threshold of trust, lower the threshold of participation, its scalability is very strong, the second point may be anti-censorship, because it does not have a centralized counterparty, or does not have a centralized account, everything It is all on the chain, so in fact, everyone can review it, and no sovereign country or any external force can change this more market-oriented and freer value circulation.

Yang Zhou:

The third point of DeFi is actually to improve efficiency. I think DeFi is designed for machines. If you use this kind of smart contract or future smart contract for clearing and settlement, it will become extremely efficient, because it is a communication between machines. From this perspective, He will also bring something revolutionary.

Wang Li:

A lot of things come down to human nature. So is finance. DeFi is still based on a storytelling stage at this stage, because productivity is not up to standard.

This attempt of DeFi is very meaningful, because once a critical point arrives on a certain day, it may be at a certain point, or in a certain financial business model, when some businesses in traditional finance will be defeated , then this time is the beginning of the explosive growth point.

We are optimistic about the possibility of DeFi in the future, but at this stage, apart from clearing and settlement networks such as Bitcoin or Ethereum, there are no other successful cases.

Yang Zhou:

The application of DeFi or decentralized blockchain also needs to improve productivity, which is one aspect. On the other hand, an education process is also required. Will the reform of some new social systems in the future, or the development of these technologies represented by the blockchain, promote the development of human society or the development of artificial intelligence Internet communication technology to promote the development of human society? Society takes a step forward.

Nothing stops us from innovating and trying new things. So I think it's the life and death of Gou Li, and it's not because of blessings and misfortunes to avoid it. No matter what the future of the world looks like, we PayPal will still work hard to do what we should do in this industry.