Ask a Tezos Expert: The State of DeFi in 2023 with Josh Dechant from Crunchy

t’s 1:35pm on a cold winters day at London’s iconic Heathrow Airport.

It’s the final day of an 11 day solo-parenting trip to the UK with my 4 year-old daughter. I’ve just traveled across London with a young child who hasn’t seen her mother in 11 days, and the nearest respite is a 9-hour plane ride to my home city of Vancouver, Canada. All this to say, I’m pretty tired, and my tolerance for extra hassles is pretty much nil.

I’d received a notification from my airline (who I will not name here) offering me the opportunity to pay my baggage fees online the day before, but, for some reason, the Visa transaction hadn’t gone through (in spite of multiple attempts). I hadn’t had time to investigate what the problem was, but figured I’d be fine paying the fees in cash when I got to the airport and checked in my bag.

As I pull out my wallet to pay the airline’s exorbitant baggage handling fees, I hear the dreaded words: “we don’t accept cash”. “Well” I say, “there’s something wrong with my Visa, but we can try my debit card”. No dice. The chip in my card isn’t compatible with this airline’s antiquated British card processing contraption. My only option, I’m told, is to ask the other passengers waiting in line behind me to use one of their credit cards to pay my baggage fee, or else my suitcase won’t be getting on the plane. Red-faced, I proceeded to do just that, until one kind-hearted soul decided to come to my rescue.

I, an entirely financially solvent man with a wad of hard-earned legal tender in his pocket and a customer service representative directly in front of him, can’t transact my necessary business without the direct involvement of a private, for-profit company which will be skimming 1.29-3.29% + $0.10 from the transaction. This private, for-profit entity has frozen my ability to conduct my financial affairs for reasons that have not been communicated to me in any way, and the onus is now on me to navigate this entity’s customer service process and sort out the issue before it’s too late to board my flight.

“This is insane”, I think to myself.

In case you were wondering, the problem with my Visa card (which I discovered immediately on my arrival at my home), was that some criminal mastermind had been racking up charges on my card without my knowledge for the better part of a week and had maxed out my available balance.

Good thing the existing systems are so much “safer and more secure” than crypto!

In the end, the whole thing wasn’t that big of a deal. Myself, my daughter, and our bag made it safely onto the plane and to our final destination. My faith in humanity was restored by the generous individual who stepped up to offer me the use of his card and make sure Visa Inc. was able to extract its pound of flesh from this seemingly simple transaction. All’s well that ends well, right?

I’m not so sure.

In a world where the ongoing digitization of our finances has been massively accelerated by a global pandemic, such scenarios are becoming increasingly common. Without even realizing it, we’ve handed an enormous amount of control of our financial lives over to private corporations with opaque internal processes and dubious motives. The covid-driven shift toward a cashless world allowed Visa Inc to skim more than 30 billion dollars’ worth of our hard-won global wealth in 2022 simply by virtue of functioning as the key gatekeeper of our digital financial lives.

That’s a lot of cheese.

And the scary thing is, if current trends continue, it’s only going to get worse.

Enter: Decentralized Finance (DeFi).

Decentralized finance imagines a world where our digital financial lives can exist without such financial gatekeepers sticking their fingers into our affairs, and where that 30+ billion dollars we just spoke about stays right where it belongs: in our pockets. Decentralized finance presumes that not only are such gatekeepers largely unnecessary, but actually socially harmful and detrimental to humanity’s collective financial wellbeing. It believes that there is a better way, a cleaner way, a more socially responsible way to manage the world’s finances, all built upon the framework of trustless, peer-to-peer transactions processed on the blockchain.

It’s a lofty dream. A dream that I desperately want to see realized.

The vested interests of the centralized banking and financial system have had a firm chokehold on our financial lives for a very long time. During their uninterrupted bull run spanning countless decades, they’ve become so ubiquitous that we’ve become convinced that we need them and that there’s simply no other way. During the 2008 global financial crisis, we were told again and again that they were “too big to fail”, even when it was obvious to everyone that they already had. 15 years later, they are bigger, badder, and more powerful than ever before.

Decentralized finance is a rich, complex, and nuanced topic. Conceptually, DeFi holds the promise of solving some of the world’s most important financial problems. However, the road to actually solving them is a long and winding one, and we are only at its very beginning. There are significant hurdles to overcome along the way, and much to be done. There are some very sharp folks making a start of it and we should all be cheering them on.

-Enter Josh Dechant-

Josh Dechant is one such sharp fellow. Josh and his team recently rolled out Version 1 of their “Crunchy Network” Defi platform right here in the Tezos ecosystem. Crunchy is the Tezos Token trading and tracking platform providing DeFi services and solutions to projects, developers, and users across the Tezos ecosystem.

In the latest episode of the TezTalk Livestream, I had the opportunity to speak with Josh about the ongoing rollout of , and I took the opportunity to pick his brain about the state of DeFi in 2023. Here’s what Josh had to say…

How do you view the current state of decentralized finance in 2023? Where is DeFi at right now?

I guess you could say we’re in a place of reflection. After the last bull run, and all the serious “rugs” I guess you could call them, I think a lot of people have become reserved. I think a lot of projects are kind of taking a step back and re-evaluating how they can provide their services to their users in a more transparent way that better protects users and gives them more sovereignty/control over their money. I think a lot of people are in a “wait and see” period as far as how regulations are going to shake out from all of this.

I definitely think we’re still early, but I think that the landscape is definitely going to change over the next few years. FTX was a super high-profile fallout. I hope we’re going to see changes, and if we don’t then we have serious issues in this space.

It seems like there was a lot of buzz around DeFi as an important use case for blockchain technology, but that the buzz has cooled down a lot in recent months. What do you think has changed?

I would attribute a lot of it to the market overall cooling off. I think the ruggings we’ve seen came because the market cooled off. I think they were propped up a lot longer than anybody knows due to all the hype. I think inevitably they were always going to fall. Ultimately it’s all cyclical and people right now are just holding on to their money and waiting to see what happens.

Obviously we all know the issues with the current financial paradigm that make Decentralizing finance so important. What do you tell people who ask you why you’ve chosen to build in this space?

Certainly I think DeFi in its current form is not for everybody. People need to understand that it is high-risk. You are taking on the risk. It’s not like a traditional system where there are protections in place to mitigate your risk and there are insurances in place. You are basically at the wheel and in control, and people need to understand that and be aware of that. This isn’t free money falling from the money tree. I think there’s an element of education that’s kind of missing and we need to add there, but certainly DeFi is going to be huge in the future.

I think there are a lot of us in modern western countries who take for granted that we can just walk out the door and walk down to the store and pick up a loaf of bread and pay for it with our credit card and the bank processes the transaction and it’s no big deal. There are places in the world where people have to worry about whether or not they’re going to be able use their bank account tomorrow. DeFi is a solution to this.

What will it take to make decentralized finance the dominant paradigm of the future, and what do people in the blockchain space need to do to help it get there?

Educating people is one aspect for sure. We also need to come up with more sustainable incentivization methods. Getting people to come in by offering them triple and quadruple digit APR percentages is not sustainable, obviously. It also bring in people in droves who are just seeking to extract as much money from the system as possible before they go on to the next thing and extract money from that. We really need to build a system that can sustain value. 900% APR is not sustainable for years on end. It’s not even sustainable for one year.

Stablecoins and increasing their use will also have a big part to play. So will tying this stuff to real-world assets. I think right now a lot of people don’t really get it because it’s just “magic money” to them. Once we start tying things to real world assets, those are real use cases, and people will start to understand all of this better as a result. It demonstrates value and I think we could see some pretty good adoption once that starts happening.

Is DeFi still an important use case for blockchain technology? What’s the real potential in this space?

I think it’s got great potential. It still is an important use case. It still is one of the biggest use cases and it will be for a long time, especially when you think about things like what happened to you at the airport. You had the money to pay for something but you couldn’t, because the systems in place wouldn’t let you. That kind of sovereignty is important. I have the money to do this, let me do it. For people that want to collateralize their own assets outside of the credit system, this could be a huge problem. If you want to go put a down payment on a house or go buy a car, and you have the money to do it, but you don’t have the credit, the current system will just refuse you. But with DeFi in place, you can just say “I’ve got the money, I’m going to collateralize and take out a loan off of my own assets and go get that thing that I want or that I need”, and you can do that on your own and set your own terms because it’s your money.

While a reality where executing such financial transactions without the need to involve a centralized third party may seem like a pipe dream today, it could very easily become a common reality further down the road. It’s something that we are already seeing occur before our very own eyes. And, with folks like Josh Dechant and the team at Crunchy doing their part to build out the tools and applications necessary to make the dream of DeFi into a reality, that day just might be coming a whole lot sooner than the powers that be would like to think.