On November 27, Lertluck Leela-amornsin, Velo’s Head of Commercial & Partnership, spoke on the topic of ‘DeFi for business’ at The Blockchain Thailand Genesis 2022 event. The session dived into how DeFi can be used to enhance real-world businesses and how we should prepare for the disruption led by DeFi.

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Enhancing real business with DeFi

DeFi is borderless, formless, limitless, provides anonymity, and creates value for businesses and individuals. Blockchain enables transactions and businesses to transcend borders without compromising security and in a reliable, immutable way. Smart contract technology also removes the reliance on an intermediary to process payments allowing for near real-time settlement of payments between all parties.

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DeFi has become increasingly popular with B2C businesses by using crypto payments instead of fiat currency. An example is how businesses can engage freelancers and pay for their service using crypto assets such as USDT/USDC. Using cryptocurrency for payments increased efficiency for all parties in terms of time, cost, transparency, and scalability.

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Another interesting aspect of DeFi’s use case is tokenization. The next blockchain trend is Web3.0 which combines Web2 and Web3 on DeFi to build a service infrastructure for Web2 businesses. New types of assets can be brought into the space through tokenization, which creates greater accessibility to these assets. These assets are secured through smart contracts that require both parties to agree before settling the terms of the agreement. Many features can be added to a token, enabling businesses to develop different models using their tokens. With proper understanding and a suitable business model, any business can quickly gain mass adoption and a larger market share than traditional methods.

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DeFi Risks

Most B2B businesses and large corporations are hesitant to adopt DeFi technology because of several barriers to entry around internal operating procedures and the associated risks highlighted in mass media. Education on the technology and a clear understanding of the issues experienced to date are important before any company should embark on including DeFi services in their company operations.

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Generally, DeFi and Blockchain technologies are relatively new. Trial and error is always the case for new technological advancements supporting broader adoption. Many of the issues reported in the media are commonly due to poor business practices and not the technology's fault. There are also attempts to derail the progress of decentralized financial products and services by the traditional finance sector which stands to lose out on fees and costs charged for their provision.

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Limitations and Opportunities from Regulations

It is undeniable that regulations on DeFi have been very rigid and slow. This is primarily due to technological advancement outpacing the government regulatory process. Regulations exist to protect users. DeFi’s decentralization nature has pros and cons, and regulations can limit risks and ensure a certain level of protection for users. This is crucial for blockchain and DeFi to gain mass adoption.

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DeFi was a logical evolution to better support individuals and B2C businesses. It has a higher barrier of entry in comparison to CeFi services (such as what Binance offers), due to the need for users to develop an understanding of the technology and its provider. For B2B businesses and large corporations to adopt DeFi, compliance, or an affinity with existing traditional finance regulations, is necessary. Regulations can establish a framework for seamless interoperability between DeFi and traditional finance sectors. DeFi can be both a problem and an opportunity from the regulator's perspective. In any country that has friendly regulations on DeFi, money will flow to that country. And other countries will soon be pressured to follow.

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The interconnection of DeFi and the traditional finance sector is the next logical evolution of technology. Regulations are necessary but must advance together with advancements in the space. This alignment will lay a strong foundation for future products, services, and projects in providing enhanced solutions for businesses with greater access to more diverse forms of payments and liquidity.