Why do DeFi and DAOs matter to business? — DAO — DeFi

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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.

DeFi

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.”

DAO

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.”

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