Netherlands-based ING Bank analyzes the risks and opportunities associated with the emerging decentralized finance (DeFi) space.
An article published last month titled “Lessons Learned from Decentralized Finance” carefully weighs some of the pros and cons of DeFi and concludes that “the best of both worlds is achieved when centralized and decentralized financial services cooperate.”
Commenting on the document, ING blockchain chief Hervé François noted that “DeFi could be more disruptive to the financial sector than Bitcoin,” adding that the Dutch cryptocurrency lender is keeping the ecosystem at gunpoint.
“DeFi is integral to ING's vision for digital assets,” François wrote in his message to CoinDesk. "The DeFi study gives ING insight into what gaps may exist in the new paradigm from a micro and macro perspective."
DeFi, the replacement of financial intermediaries with automated digital contracts, is of great importance today as there are about $ 76 billion in assets concentrated on Ethereum alone.
For its part, ING Bank has proven itself to be a pioneer in the cryptocurrency space, leading a cohort of banks on an institutional-grade custodian solution as well as anti-money laundering (AML) measures for digital assets.
ING eyeing DeFi
Among the lessons learned, ING highlighted a common trade-off where counterparty risk mitigation is largely replaced by the technical risks associated with smart contracts.
However, the limitless nature of DeFi is tempting for ING, according to the document, as centralized institutions spend a lot of time and money under numerous regulations in various jurisdictions.
The document says:
According to ING, AML and know-your-customer (KYC) compliance is something financial institutions could help DeFi with:
ING selected Aave decentralized lending platform to conduct research on the various characteristics of DeFi, writing:
Aave is known to be weighing DeFi's institutional capacity by hiring several banking professionals and recently joining the Enterprise Ethereum Alliance.
Asked if there is any particular reason why ING chose Aave over other DeFi platforms, François replied simply, “We know them.”