What’s On the Horizon for DeFi in 2022
The contribution was part of Deal Street Asia's report on "The State of Decentralised Finance in Southeast Asia 2021"
1. What DeFi trends do you expect to see in 2022 and beyond?
Interest in DeFi continued unabated this year driven by institutional players including corporates, hedge funds, and family offices. The pace of innovation was buoyed with fundraising and investment in projects stepping up in Southeast Asia, with Thailand and Singapore leading the pack.
Institutional adoption will continue into 2022 as the level of comfort and confidence with DeFi grows, boosted by perceived legitimacy of regulatory clarity in Singapore around digital assets.
2. What kind of DeFi projects/products do you think will take off next year?
We can expect centralised finance (CeFi) entities to integrate DeFi contracts, by either creating some of their own protocols, and provision of liquidity to each other. We are already seeing some centralised crypto exchanges leveraging Automated Market Makers (AMM), which is originally an innovation by DeFi players to address liquidity issues.
CeFi players are well-positioned to provide its customers access to DeFi project features in a centralised manner. For instance, if a decentralised application is quoting options, there could be a way to link some of the liquidity there to be posted on centralised trading platforms, or vice versa.
We should also see more crypto “vaults”. Traditionally, a “vault” refers to a fund, where deposited funds will be managed according to a specific strategy. In the context of crypto, participants can invest in projects that can execute pre-defined hedging or strategy using smart contracts, as opposed to traditional fund structures. Such vaults can similarly help investors execute per the given mandate, such as selling or buying certain options on exchanges such as bit.com.
We will also likely see more innovation around cross-chain interoperability with projects that allow for bridging between the L1 ecosystems, or bridges themselves, or even aggregators of bridges.
3. What projects or new services does Matrixport plan for 2022?
As a platform for crypto financial services and asset management, we expect to double our assets under management and grow our customer base. About 70 percent of our user base is in Asia, and we are also looking to deepen our global footprint in Europe and the US. We will continue to innovate and explore a wider selection of features and products that resonate with customer demands, such as non-fungible tokens (NFTs) and decentralised autonomous organisations (DAO).
4. What is your view on the level of institutional adoption of DeFi in the region, and what do you expect to happen in the future?
As mentioned earlier, institutional adoption of DeFi has taken off in 2021 across the globe, with institutions accounting for more than half of all DeFi transactions this year.
In this region, we expect that uptake will be uneven with Singapore being the most receptive, followed by Thailand and Indonesia. Adoption may accelerate with specific use cases to this region, such as services that serve the underbanked with smartphone access.
5. What would be the impact of CBDCs on the region’s DeFi landscape should monetary authorities in the region proceed with their plan to issue?
From Cambodia’s Project Bakong to the Monetary Authority of Singapore’s (MAS) Project Orchid, the region is at various stages of research and development to study how CBDCs could be applied to their financial systems.
A major motivation for many national banks in launching CBDCs include building a more efficient and inclusive payment system. CBDCs, as digital currencies issued by central banks, are able to significantly reduce the layers of intermediaries involved in domestic and international remittance. This cost savings could consequently be passed on to businesses and individuals.
Once CBDCs are widely launched, there is a possibility that they will be competing with privately issued stable coins, as these digital currencies would bear digital identity features and compliance with the issuing authority.
I think we will see a diminishing of stable coins overall, as their use case would be reduced, especially if the CDBCs can be used across both regulated and unregulated spaces.
6. The regulatory crackdown on cryptos in China is believed to benefit the region, particularly Singapore. What is your view on this? How can the region cope with the talent crunch?
Matrixport has been headquartered in Singapore since its inception in 2019. It was a natural choice given the country’s status as an established international financial services and wealth management hub.
As crypto is a decentralised asset, its development and innovation are not limited to any single jurisdiction.
Talent flows to wherever there is a fostering environment, so countries with a welcoming regulatory framework that encourages innovation, coupled with progressive immigration policies will be big beneficiaries.