Mike Belshe, CEO and co-founder of BitGo, talks about how use cases like automated market makers will change traditional banking. In 2021, the worldwide market for decentralized finance was estimated at $11.78 billion. This number is likely to go up as DeFi gets better, even though the technology is still young. Consequently, several banks and conventional financial institutions are ignorant of its potential.

Cryptocurrency experts expect decentralized finance to surpass conventional financial institutions in the following years. Mike Belshe, CEO and co-founder of BitGo, a provider of digital asset custody, told Cointelegraph that he expects DeFi to replace banks within three to four years. In an exclusive interview on October 25 at Activate, BitGo’s developer conference in Mountain View, California, Belshe talked about this subject.

Also read: Understanding DeFi: A Discussion on Layer 2

He believes that DeFi will replace institutions based on the novel use cases they are beginning to see now. For instance, automated market makers, or AMMs, have significant disruptive potential. Market makers have been very important in ensuring that markets and exchanges work well, but fast-changing markets like cryptocurrencies may make it hard for users to figure out how much an asset is worth. For instance, if a stock is sinking, market makers may believe assets should be sold, even though this might further depress values. This is also typical of conventional markets, such as stocks and commodities. Market makers also tend to cease activities during tumultuous periods, which may be detrimental. Also, market makers are closely watched by the Securities and Exchange Commission of the United States and the Financial Industry Regulatory Authority. The regular monitoring of market makers by regulators requires several hours of human labor.

Market-maker research can now be incorporated into DeFi apps, eliminating the need for human brokers. Money makers, also called AMMs, could now be written down and looked at by the SEC or FINRA. Investors may also study this code. So, the government doesn’t have to keep an eye on broker transactions anymore, and investors can buy assets at a lower price. AMMs present various difficulties, such as code problems and security vulnerabilities related to DeFi apps. But computer science programmers are working to make smart contracts safer and easier to evaluate by cutting down on the number of bugs in the code. Nonetheless, regulatory and compliance concerns persist. Because of this, it’s too soon for DeFi to beat out traditional financial institutions, but he thinks that the sector will change a lot in three to four years.

Failure of FTX is the failure of CeFi. #DeFi is still working as intended.

Even FTX had to close their on-chain positions while they were able to fool the CeFi system.#bitcoin & crypto will thrive regardless of FTX.

More reasons to be #Dheet ✊ 🇮🇳 pic.twitter.com/hiJFUwSuGT

— Crypto India (@CryptooIndia) November 15, 2022

They are presently concentrating on the development community, so no. Several new blockchains, for instance, want to develop gaming, DeFi, and nonfungible token applications. Herein lies the role of the BitGo development platform. They want to ensure that their APIs are fully compatible with DeFi platforms so that apps can be built on top of BitGo. This will allow for faster apps while linking our customers to blockchain networks.

BitGo also includes DeFi-related functionality for intelligent contracts. He thinks that software alters everything, including the financial services industry. For example, MetaMask now supports blind transaction signing. BitGo plans to develop transaction emulation to address this issue. This will effectively demonstrate to consumers what will transpire before transactions occur. This is important because DeFi won’t be able to take over institutions until security problems in the industry are fixed. Now, banks must consider using software to create new financial services. If they don’t, they’ll lose ground to smaller competitors. He also feels Wall Street is facing a problem for innovators. They know that cryptocurrency is coming soon and has the potential to change things, but it is still too small to have a significant impact right now. So, Wall Street isn’t going to change its ways, but smaller crypto startups will keep coming up with new ideas. Therefore, more giant enterprises will take much longer and cannot enter as quickly.

This has been the case for decades in the technology industry, which is why smaller competitors often win. They also see that large technology companies are involved in DEFI while banks are still not interested. For example, Google Cloud is now implementing cryptographic infrastructure. This will create an even more significant disadvantage for banks. He believes that the SEC is increasingly to blame for those who have lost money in the cryptocurrency market. The sector would have a far safer investment structure if the SEC approved a Bitcoin exchange-traded fund based on spot prices. This would let people invest in the asset class through regulated and monitored businesses. Instead, the SEC denies this, resulting in bankrupt exchanges and bad actors.