The DeFi ecosystem needs to be wary of institutional investors, says Laguna Labs’ CEO

Stefan Rust, CEO of Laguna Labs, discussed in-depth MakerDAO and how the decentralised finance (DeFi) ecosystem should consider its next steps. 

Stefan Rust, CEO of Laguna Labs, has warned the DeFi community to be wary of institutional investors. MakerDAO is one of the leading DeFi projects in the world, with its DAI stablecoin gaining huge adoption within the crypto ecosystem. 

According to Rust, MakerDAO’s US dollar-pegged token, DAI, is today the only truly successful decentralized, semi-algorithmic stablecoin in the market. He stated that;

“In its five years of existence, MakerDAO has battled through some of the most challenging conditions seen in cryptocurrency and wider financial markets. From the crypto crash and subsequent recession of 2018 to 2020 to the crisis prompted by the outbreak of COVID-19, to the current turmoil created by rampant global inflation (caused by rampant money printing) – MakerDAO has survived it all.”

Rust attributes DAI’s growth to MakerDAO’s strong governance model. He revealed that the COVID-19 crisis prompted an entire rethink of how DAI is backed, and through a democratic process that included its entire user base, MakerDAO was able to implement capital measures that saved DAI and paved the way for the explosion of decentralized finance in 2020. 

Despite the growth of the DeFi ecosystem, Rust highlighted the massive entry of institutional investors into the MakerDAO community and other DeFi projects as being unhealthy. 

While it is a welcomed development, Rust pointed out that institutional investors dictating the terms is not good for the growth of the cryptocurrency industry in general.

As such, he urged the broader community to shy away from taking the easy money and continue on the path of natural growth. Rust said;

“We only have to look at the traditional finance sector to see the consequences of such short-sighted greed. After more than a decade of unprecedented monetary printing, the entire global economy is facing an inflationary situation the likes of which it perhaps hasn’t faced before. With most monetary measures exhausted, central banks are left with almost no ammunition to tackle rising prices that are leading us into a worldwide recession.”

With inflation levels rising in Africa, South America, Europe, and the United States, Rust believes that the cryptocurrency sector is a beacon of hope in this gloomy atmosphere. 

He mentioned that the world currently needs an entirely decentralised network with a truly global, entirely borderless reach, blockchain has the ability to open up financial markets to anyone with a smartphone – and increasingly, that is almost anyone on the planet.

Rust pointed out that while DAI, the DeFi space, and other stablecoins have come close, we are yet to create a universal asset that would be open to everyone. 

He pointed out that the idea of a “flatcoin” is emerging: a cryptocurrency pegged to the value of a basket of goods that would allow users to preserve the value of their wealth in an inflationary environment. 

Rust added that;

“If combined with a safe, asset-backed and fully audited system, this would be a huge leap forward in the world of cryptocurrency. As interest rates seem unlikely to surpass inflation anytime soon (if ever again now our banks are so addicted to easy government money), digital assets are truly just a Facebook or Amazon away from mainstream adoption – and such a project could finally tip us over the edge.”

Rust believes that there is a globalised financial system emerging on the blockchain. However, allowing institutional investors to pump the market for growth before harvesting it would lead to the death of the ecosystem. 

Hence, Rust called on all DeFi projects to think carefully about their next move as this is a crucial time for the broader decentralised finance market. 

Stefan is the founder of Laguna Labs, a cutting-edge blockchain development house, under which he has launched trustednode.io, truflation.com, and nuon.fi. 

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