Why Do DeFi and DAOs Matter to Business?
First published in Digital Nation on 24 May 2022
Decentralised Finance (DeFi) models are becoming more mainstream, however, there remain some significant questions over Decentralised Autonomous Organisations (DAOs), according to Nick Abrahams, global co-leader of digital transformation at Norton Rose Fulbright.
DeFi and DAO are two concepts born in Web3, that many executives may have heard of but have not yet become familiar with.
Digital Nation Australia asked Abrahams to break down DeFi and DAO for business leaders.
According to Abrahams, DeFi is the creation of an alternative financial system that exists within a decentralised world.
“You can pretty much do whatever you want in a financial sense that you could do in real life, you can do now in DeFi, so borrowing and lending and so forth. It’s largely stayed within a core group of DeFi folks, but what’s been very attractive is there’s extraordinary interest rates on offer where you effectively lend on DeFi platforms, so you can be up to 20 percent per annum,” said Abrahams.
Money, insurance and shopping comparison Finder is one example of an Australian business that is leveraging a DeFi platform.
“They have a platform where you can deposit money effectively and get DeFi like returns on that. We’re starting to see more of that, but it’s going to take a while for traditional banking to get comfortable with cryptocurrency and with decentralised finance.”
While banks don’t traditionally recognise Bitcoin as collateral, Abrahams points to the recent announcement from Goldman Sachs in the USA for the first-ever loan arrangement fully collateralised by Bitcoin.
“DeFi is slower with coming in domain stream. But if you look at where we got to with ANZ minting a stable coin, we know that they’ve obviously been watching very closely the DeFi world and a stable coin is a critical element of DeFi.”
Abrahams explains DAOs as being similar to decentralised crowdfunding, where a group of individuals join a smart contract, where their token reflects their ownership and voting rights.
However, DAOs have not yet moved into the mainstream, and in the form in which they currently exist, Abrahams is reticent to say that they ever will.
“I’m not sure of the future of DAOs because you’ve got at one end of the spectrum, very much a sort of techno-utopian ideal, which is that we should all vote on everything. And that doesn’t work for a complex business,” he said.
The second generation of DAOs that are coming through are being broken down into smaller governance committees making decisions he said.
“That feels very much like a company structure. I mean the crypto purists will hate me saying that, but that’s effectively where that is headed.”
Abrahams also points out the legal challenges of DAOs as they are regarded legally as partnerships with all individuals equally liable.
“I’m a little bit hesitant on [DAOs] and I think we’ll have to see some more work done on them before they’re ready for prime time.”