The long-term value of decentralized finance (DeFi) depends on its ability to transform the back-office operations of global banking institutions rather than providing alternative business environments, according to banking and asset management executives.
Speaking on a panel at the Proof of Talk conference in Paris, executives said legacy financial institutions are eager to adopt blockchain technology, but that is unlikely to happen given weaknesses in on-chain security, especially in bridges linking different blockchains.
In April, breaches were reported on 27 out of 30 days, leading CertiK CEO Ronghui Gu to describe it as DeFi’s worst month in four years. Only Drift Protocol and Kelp Dao were hacked by North Korean cybercriminals in exploits that siphoned nearly $600 million from the two lenders.
“I don’t think you’ll see growth in DeFi until we solve the first problem… which is hacks,” said Maja Vujinovic, CEO of investment and advisory firm OGroup. “I think it’s an absolute problem until we solve the bridges. I don’t think DeFi will grow outside of the degen DeFi community… until they fix probably a full stack.”
His comment was echoed by Ben Nadereski, co-founder and CEO of Solstice, a Solana-based DeFi yield protocol, who told CoinDesk in an interview that DeFi growth is being held back by the flood of exploits, a flaw he attributed to developers frequently creating innovative code without paying enough attention to the core responsibilities of managing capital.
Working on a solution
Stéphanie Cabossioras, head of global strategy and policy at Societe Generale Forge, said traditional banks are already working to address these structural gaps.
He noted the company’s track record in tokenizing structured products and green bonds on public blockchains. To make those digital assets work, he said SG-Forge had to fix the cash settlement layer by developing its own regulated stablecoins, such as EURCV and USDCV.
“At the end of the day, we were stuck because there was only the securities tranche on the blockchain, and we didn’t have the cash tranche on the blockchain,” Cabossioras said. “That’s why we started issuing a stablecoin.”
Institutional clients, Cabossioras said, prefer the security of a regulated bank to open source, non-custodial DeFi protocols.
“In everyday life, any person (individual, medium or large company) wants to have a part of trust,” said Cabossioras. “We do not want to keep our assets in our private wallets, in our safes at home. We want to delegate this peace of mind to a third party. And that is why custodians or banks still have a future.”
