‘DeFi will replace institutions entirely,’ says BitGo CEO Mike Belshe

The global decentralized finance (DeFi) market size was valued at $11.78 billion in 2021. This number is expected to increase as DeFi advances, yet it is still in its infancy. Therefore, a number of banks and traditional financial institutions still tend to be unaware of DeFi’s potential. 

While this may be, industry experts within the crypto sector are predicting that decentralized finance will overtake traditional financial institutions in the coming years. For instance, Mike Belshe, CEO and co-founder of BitGo — a digital asset custody provider — told Cointelegraph that he believes DeFi will replace institutions in the next three to four years. Belshe elaborated on this point during an exclusive interview conducted at Activate, which was BitGo’s developer conference that took place in Mountain View, California on Oct. 25, 2022.

Cointelegraph: Why do you think DeFi will replace institutions?

Mike Belshe: I think DeFi will replace institutions based on innovative use cases that we are starting to see today. For example, automated market makers, or AMMs, have a lot of potential for disruption.

While market makers have played a critical role in ensuring markets and exchanges effectively work, markets that move fast like crypto can make it difficult for individuals to determine asset prices. This also tends to be the case with traditional markets, like stocks and commodities. For example, if a market is tanking, market makers may think assets should be sold, yet this could drive prices down even more. Market makers also tend to shut off operations at volatile times, which can be harmful. Moreover, market makers are heavily regulated by the United States Securities and Exchange Commission (SEC) as well as by the Financial Industry Regulatory Authority (FINRA). Regulators watch market makers daily, which involves many hours of manual work.

DeFi applications are now capable of plugging market maker research into smart contracts, eliminating the need for human brokers. Known as AMMs, money makers can now become a piece of code that the SEC or FINRA can review. Investors can review this code as well. As a result, regulators don’t have to monitor broker deals and investors can get a better price on assets.

Of course, there are challenges that come with AMMs, like code bugs and security issues associated with DeFi applications. But, we are now at a point where computer science programmers are working to ensure that smart contracts will have fewer bugs…