Decentralized finance services (DeFi) are booming, but there are signs that the same companies are still investing in this new sector. To grow this market, it is necessary to expand the number of actors involved, but that will not happen until users have privacy and security.
Less privacy: limit or opportunity
In the old school world of CeFi (Centralized Finance) it is common to ignore DeFi because it is designed to support anonymous transactions that can allow for money laundering. This is, of course, completely wrong, but it serves to fuel fear of competition.
In fact, it is the lack of privacy in DeFi that could become an increasingly significant advantage for this industry. For companies, moving to DeFi could generate enormous value. Financing activities through standard procedures can be complex.
Getting a good rating depends on sharing documents and data on asset quality or past cash flow history. In the real world, this takes time and paper, leading to a greater chance of fraud risk and fewer opportunities.
On a blockchain, however, data can be instantly distributed to a number of bidders. Businesses may be interested in seamless techniques for moving capital, but they also need to protect their trade secrets.
On a public blockchain, those secrets would be completely exposed. We are experiencing an explosion of innovation and growth in the DeFi space. For this to continue, the market must become both broader and deeper.
Calibrate transparency
Although blockchains like Ethereum - here the quotation in real time - do not merge names to addresses, it remains possible to link transactions to the individuals involved. This is especially true for large companies or larger private wallets that often move large sums of money.
For most of them, this is a big deal. Privacy is not to be confused with anonymity. The goal is not to hide transactions from regulators, but to hide transactions from the analysis of potential competitors.
If companies sign and acquire ownership of smart contracts, which tokenize and automate trade agreements, they reveal the parts and requirements of those contracts. This is where approaches such as the basic protocol can be applied.
The goal of the core protocol is not only to connect large companies securely and privately through public blockchains, but also to preserve the power and value of tokenization. Inputs and outputs such as purchase orders, invoices and capital goods leases are designed to be tokenized under conditions of privacy and therefore can be transferred, used and managed with the same types of DeFi solutions as those developed today.
While privacy tools can help protect companies from making their strategies public, they must not prevent the market from operating transparently. Well-designed computer codes and smart contracts can protect the identity of the buyer and seller while exposing the appropriate information.
