Three Things from 2021: Part 3 - Early Innings of Institutional DeFi

May 3, 2022

Head of WisdomTree Onchain

The Wikipedia entry for DeFi provides a concise definition: “Decentralized Finance (DeFi) offers financial instruments without relying on financial intermediaries as brokerages, exchanges, or banks by using smart contracts on a blockchain.”¹ For some early adopters, the term “institutional DeFi” might be inherently inconsistent. To them, DeFi is all about removing gatekeepers, allowing anyone with a wallet and an internet connection to access all sorts of financial service offerings. This vision can be a bit utopic, but DeFi presents incredible opportunities for customers and financial services providers by demonstrating the possibility of more automation, transparency and auditability in finance.

DeFi protocols are the network and communication protocols by which these financial transactions can happen. Many of the prominent DeFi protocols are fully permissionless. As such, financial transactions conducted via these protocols do not adhere to the same KYC and AML standards that regulated financial transactions do. The protocols simply cannot or do not factor in the gatekeeping requirements to do so. Some users, including regulated institutions, have elected not to participate in these protocols due to the lack of these standards and the uncertainty that creates.

In recent years, an increasing number of firms and protocols have been trying to address these challenges for institutions through a variety of means.WisdomTree has invested in one such firm, Securrency. Aave, a popular decentralized liquidity protocol, has recently announced its plans to create a “permissioned” version of its protocol where all participants will need to be verified and onboarded by a whitelister. I anticipate we’ll see more developments here in the near future.

At WisdomTree, we’ve used the term “Responsible DeFi.”² For us, this term is about bringing the DeFi principles of choice, transparency, and accountability to clients -- with an eye toward usability, security, regulation and consumer protection. It’s an ethos, one we’ve brought to our process of building WisdomTree Prime™.

[1] Decentralized finance, Wikipedia.[2] “Responsible DeFi” is a term we believe was initially coined by former CFTC Commissioner Dan Berkovitz.

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Head of WisdomTree Onchain

Will Peck serves as Head of WisdomTree Onchain. In this role, he oversees WisdomTree’s digital asset, crypto and blockchain initiatives. These initiatives include crypto asset management products, tokenization and WisdomTree’s digital wallet offering, WisdomTree Prime. Previously, he served as Head of Strategy and Emerging Technologies for WisdomTree. Prior to WisdomTree, he worked in investment banking for Bank of America Merrill Lynch covering a range of financial services companies. Will serves on the Board of Directors of Securrency, Inc., a technology company focused on blockchain-based financial services infrastructure. He graduated cum laude from Harvard University.

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