Foreword: As the chief operating officer of the Wall Street Blockchain Alliance, a non-profit organization, Steven Ehrlich is interested in decentralized finance in the encryption arena and how creators and operators build strong stakeholder communities. With hundreds of members in the financial services industry, Decentralized Finance (also known as DeFi) will have a major impact on the organization's work throughout 2019 and beyond. Originally from Forbes, author Steven Ehrlich, translated from the first class.
Although DeFi does not have a uniform definition, the term is often used to describe traditional financial applications and services based on blockchain technology (payment methods, deposit accounts, loan products, wealth management). DeFi offers many enticing use cases, such as allowing participants to immediately send money or earn interest on their crypto assets in a short period of time, as multiple participants try to be a powerful and diversified financial system based on blockchain technology. Lay the foundation.
At the same time, although blockchain technology and its ideology are a huge incentive for users who are dissatisfied with the current financial landscape, encouraging users to participate in the decentralization of DeFi may actually limit the long-term potential of some platforms. why? Because DeFi products essentially limit the interaction between customers and developers, it may reduce brand loyalty and cross-selling capabilities.
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To further investigate this issue, this week I interviewed two leaders in the field of DeFi-related blockchains – Zac Prince, CEO of BlockFi, and Steven Becker, president and chief operating officer of the MakerDAO Foundation. The discussion is summarized as follows:
- DeFi is keenly aware of how traditional banking and financial technology companies are working to create a loyal and participatory customer base that is actively researching these models to determine how to apply these strategies to their models.
- The DeFi community is single, so each company should evaluate it independently.
- The success of many products and services in the future will depend on the extent to which decentralization affects individuals, especially if there is a trade-off between decentralization and customer value.
- Pure decentralized organizations and products often do not grow as fast or grow as fast as hybrid or centralized companies, but they also operate in different time frames.
Financial technology challenge
This topic is important because the encryption industry is actively competing with well-known start-ups such as PayPal, Square and SoFi (short for social finance). These companies offer easy-to-use products and have accumulated a large customer base. In addition, these companies now even offer encrypted trading services. SoFi deserves special attention, as its name suggests, and it is very focused on building brand loyalty and interaction with the customer base. According to a recent interview with Cheddar, SoFi CEO Anthony Noto emphasized that the focus of SoFi in 2019 is on social products. Noto said: "We provide members with more than just these tangible financial products… We also provide them with free career advice, free certified financial planning advice, membership activities, and we will release some intangible products next year. Everyone’s funds are fully utilized.”
Blockchain response – BlockFi
BlockFi aims to transform SoFi's strategy, in the words of Zac Prince, CEO of BlockFi, "to implement a strategy to deliver as many value products as possible to the customer base, and then to try to build a close relationship with the customer base." But BlockFi is implemented by building products on the blockchain technology stack.
Prince used to be a SoFi customer and he affirmed this strategy. In our conversation, he told me a story. When he first used SoFi's service, SoFi sent him a small bottle of wine and some cheese, and he and his wife shared it with pleasure. At that time, he felt that "this financial company is really different." "I feel more like their company than other financial companies."
To this end, BlockFi actively interacts with customers and a wide range of communities through chat mechanisms on its website and staying active on social media such as Telegram, Twitter and Reddit. The company also publishes quarterly customer surveys and regularly hosts gatherings for customers in major US cities. However, BlockFi does not currently pay much attention to cross-client communication, but may consider it in the future.
However, the most interesting thing about talking to Prince is that although BlockFi is often called DeFi, he doesn't think it's appropriate. When asked why, he pointed out that “in the past, we did not think that we were trying to build a decentralized structure. We believe that the traditional corporate structure will be used in raising funds, coordinating incentives, and hiring planned employees. Better.” He also pointed out that the centralized approach makes things more efficient, such as iterating new products, even the beta version, it’s hard to do for a platform that runs completely on smart contracts with little room for error. Arrived.
Prince further elaborated on his reasons for this idea. He disagreed with the view that "in the long run, decentralization will become the main driver of customer acquisition." He said, "I don't think most people are like this. Think, you randomly find 100 interviews on the street to see how many people care about centralization. If there is another wave of adoption in the encryption industry, then I think that most new projects may not care so much or pay attention to Centralize the part and focus only on its value proposition."
Blockchain response – MakerDAO
Compared to BlockFi, MakerDAO is often considered the epitome of DeFi. Steven Becker, president and chief operating officer of the MakerDAO Foundation, said in a conversation with me that he believes that the decentralization of the platform will not only attract new users, but also create a pluralism. A strong, stable, and stable stakeholder community that will ensure its long-term success.
My discussion with Becker is summarized in the following three points.
First, although decentralized systems are slower, they generate a strong and aggressive customer base because they remain highly transparent to risk and operations. He compared the MakerDAO settings to the stable currency supported by the French currency. These stable coins grew faster but were opaque, making it difficult for customers to truly understand their operations.
Second, the social benefits of the DeFi platform are rooted in their DNA, and they are more attractive to customers in the long run. In particular, Becker pointed out that “there is a huge difference between social finance and decentralized financing. In short, social finance attempts to cause widespread social influence, but decentralized finance can actually promote this impact.”
Third, when discussing community involvement, Becker made it clear that he believes that stakeholder involvement (including MKR governance token holders, Dai holders, market makers, and CDP creators) has been active so far, but still There is a long way to go. He emphasized that these stakeholders are currently too concerned about specific use cases. For example, CDP users typically use Dai to make large amounts of collateral on the encryption market, while Dai holders often act as liquidity providers.
For future development, he hopes that “these stakeholders can be diversified. I mean diversification of the system. The more diversified the Dai holders, the more diverse the use cases are. We have a diverse use case. MKR token holders The same is true. The more diversified they are, the more diversified their incentives are.” He hopes that Dai holders who want to use stable coins for daily transactions can actively participate.
Becker expects this new level of participation to emerge once supply and demand are balanced, without the need to frequently and significantly adjust stability. But there is also a need to discuss other forms of risk in weekly risk and governance conference calls to diversify stakeholder groups and keep them engaged. These risks include CDP risk (allowing people to borrow other forms of collateral other than Ethernet) and what he usually calls exogenous risks. Becker said: "Every era will have new themes occupy people's mindset. But now it is just stable and free."
Finally, he acknowledged that the MakerDAO community is likely to become unorganized in the end. Obviously, the future of MakerDAO is ultimately not in the hands of the foundation, but in the hands of the community and its many stakeholders. And for my question, "Whether MakerDAO is interested in following the famous model of Fidor Bank's Munich headquarters, it has a very active stakeholder network." Becker's answer also proves that the above statement is true, he said, "all Model framework, we have considered all the considerations… We actually take the lead in the community. We are currently considering many models, although there are so many models, we can better understand people's expectations of the system, including Its participation and contribution."
From the conversation with them, the way to build a community of participation in the DeFi and blockchain ecosystem is not singular, but it is a major concern for the major players in the field. This is especially true given the fierce competition between traditional financial technology companies. Key people and stakeholders need to make their own centralization decisions, and ultimately make a trade-off between speed and the introduction of new products and the advantages of opacity and trust in third parties.
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