Campbell Harvey is a pioneer in decentralized finance research. In his talk DeFi: Opportunities and Risks, he delves into the intricacies of this emerging technology, and flags the many research opportunities in the space of decentralized finance. He starts with a convincing argument that times have changed when it comes to cryptocurrencies: major banks, once skeptical, are now trading Bitcoin. But far too much attention has been focused on Bitcoin — many are familiar with the asset, but few understand the underlying concept behind it. Bitcoin is just the tip of the iceberg of DeFi. DeFi represents a historic disruption of the current financial system, which will replace all meaningful centralized financial infrastructure in the future. It uses blockchain technology to solve problems in the financial system like operational inefficiencies, limited access to credit, astronomical loan rates, lack of transparency, and centralized control.
Harvey believes that if we don’t address the risks of DeFi, it will never cease to be a mere exploratory technology. He focuses on 7 major risks: smart contract, governance, oracle, scaling, decentralized exchange, custodial, and regulatory. He brings in relevant case studies from the industry like the DAO failure of smart contracts in 2016, the True Seigniorage Dollar case, in which a hacker amassed governance of the token, and the case of a german millionaire who was locked out of $220 million because he forgot the password to his digital wallet. Harvey shows that these risks are, in fact, opportunities for research. The current wave of fintech has been focused on improving centralized finance and is likely fleeting. Instead, fintech needs to address the fundamental problem of reconstructing our financial infrastructure. We are seeing the scaffolding of a new city that reinvents finance, Harvey says, it is just a matter of time for the legacy players — and they know it.