Traditional companies have founders, employees and service providers managing daily operations. Decentralised companies only have founders. Instead, programmable smart contracts on blockchains handle everything humans do in centralised companies: clearing transactions, checking orders, managing any definable parameter against set criteria.
This fundamentally differs from our current financial system, which relies on CEOs, executive boards, employees, and often public shareholders to run businesses.
Setting the tone
At a DeFi (decentralised finance) roundtable last week, Securities & Exchange Commission (SEC) commissioner Paul Atkins urged staff to update laws stifling decentralised finance development in the US. He criticised the SEC’s enforcement-heavy approach, advocating for “innovation exemptions” to reduce regulatory friction for DeFi developers. He noted that blockchains are creative and potentially revolutionary innovations that prompt a fresh look at ownership and the transfer of intellectual and economic property rights.
The key quote: “Most current securities rules and regulations are premised upon the regulation of issuers and intermediaries, such as broker-dealers, advisers, exchanges and clearing agencies. The drafters of these rules and regulations likely did not contemplate that self-executing software code might displace such issuers and intermediaries. I have asked the commission staff to explore whether further guidance or rulemaking may be helpful for enabling registrants to transact with these software systems in compliance with applicable law.”
The implications of this statement are huge, especially acknowledgment that financial rule writers never imagined self-executing software code displacing traditional financial players.
After his remarks, early DeFi projects such as Uniswap (decentralised exchange), Aave (decentralised lending platform), and Maker (early DeFi banks), saw investment increases in the cryptocurrencies that power these decentralised networks.
Traditional finance has been edging into DeFi in the past few years. BlackRock’s BUIDL fund puts US treasuries on the ethereum blockchain, but it remains centralised in some key aspects: investment restrictions and BlackRock’s centralised management.
Imagine if a major bank ran its lending system like DeFi platforms. A company needing a loan could put valuable assets such as government bonds into the crypto protocol. Smart contracts would automatically check asset values and issue loans in digital currency without requiring paperwork or human verification.
The protocol would monitor asset values continuously. If values dropped significantly, the system could automatically request additional collateral or liquidate assets to cover loans. Every transaction — deposits, loans, repayments — would be recorded on the blockchain for verification, allowing auditors or regulators easy access without file searches. Processes that take weeks in traditional banking could be completed in minutes.
It’s a brave new world that we’re not ready for in terms of regulation, risk appetite and trust in these systems, but the technological potential exists.
Atkins’s statements recognise cryptocurrency’s utility beyond price speculation. If DeFi protocols are increasingly being used by traditional finance, could they be viewed more like Apple stock than speculative tokens? Many crypto investors interpret his comments this way.
De Wit is South Africa country manager at Luno
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