Decentralized finance, more commonly known as DeFi, is quite complicated. Even the heads of DeFi companies seem unable to define the sector in a few sentences. So, here’s another attempt: DeFi is a financial ecosystem, in which it is possible to build tools, services and smart contracts and then bond them together on a blockchain, just like lego. It might not sound like fun, but it’s probably more useful.

Lego might well be Denmark’s most famous export, but DeFi’s number one company, MakerDAO, is giving it a run for its money. Since the company was formed in 2015, it has rapidly grown to be the market leader in one of finance’s most exciting sectors. Cointelegraph caught up with MakerDAO’s European business development representative, Gustav Arentoft, about centralization and the company’s next move.

MakerDAO on decentralization

For many in the industry, DeFi and MakerDAO are synonymous. However, that does not mean that the company attracts only slavish adulation. For better or worse, blockchain technology and cryptocurrency are philosophically driven. For many investors, decentralization is the most important principle, to which companies and currencies must adhere. 

Arentoft explained that, on the business side, universally applying decentralization across all use cases is not necessarily a recipe for success. He explained his feelings about the company being described as a decentralized central bank by fellow blockchain bankers Bitwala:

“MakerDAO definitely shares a lot of similarities to the banking system. It can be looked at just like a community-driven central bank. We don't label ourselves as a central bank. But we do, of course, share a lot of similarities with traditional finance.” 

Arentoft believes that some of the activities performed in the company’s system are very similar to what a central bank would do in a traditional finance setting, adding:

“So, in that sense, I don't believe that we have reinvented the way that we do finance. We're just doing it in a different way where we utilize the transparency and openness of the blockchain and the effectiveness of, for example, smart contracts to be able to execute specific tasks. This system is kind of like where we replace some of the traditional methods of doing things and thereby heightening efficiency.” 

Although DeFi is by definition decentralized, Arentoft said that elements of centralization can actually be beneficial to projects in early stages: 

“I think there's two sides to the question. In direct retail offering, is centralization acceptable there? And then, at the protocol level, where, for example, we are taking the approach of gradual decentralization. And one of the reasons for that is also that initially, when you build a product, when you're bootstrapping the ecosystem and you actually have a developer team sitting and building the protocol, you cannot be decentralized, because you literally have a team sitting somewhere building it.”

For Arentoft, the prime justification for gradually decentralizing as the project grows is increasing the level of security. Although DeFi, through the flexible nature of its financial ecosystem, is inherently more driven by cooperation than other aspects of the cryptocurrency sectors, this does not mean cut-throat acts of corporate aggression do not take place: 

“There are a lot of things that you need to do over time because if you release something that is completely decentralized from day one, you also open up for a lot of attack vectors in the system. A good example is what happened with Steemit.”

Arentoft explained that, at MakerDAO, the thorny question of centralization is not solved by adopting a binary position, arguing that flexibility offers more maneuverability for varied use cases:

“What we are building is going to be this public infrastructure that really can sit and supply infrastructure and has possibilities for a lot of fabrication applications on top of it. So, we believe it should be decentralized, but it's something that needs to happen over time. I don't personally believe that it’s binary in the sense that you are either decentralized or you're like traditional finance. I believe that, on the spectrum, there's space for a lot of different uses.”

Expanding decentralization across continents

While some aspects of crypto finance can be a hard sell for those in mainstream finance, recent years have seen more of an overlap than ever before. The “Libra” moment was not only unique due to its remarkable impact on the markets but also because it shined a light on how decentralized finance could be rolled out effectively to a huge number of prospective customers around the world. 

While a lot of crypto activity takes place in the United States and Europe, MakerDAO’s customer base is spread widely around the world and seems to be still growing. Prior to the coronavirus pandemic put the world on lockdown, Arentoft had planned to visit Africa and Asia. Furthermore, MakerDAO also has a foothold in South America, with a strong following in Argentina.

While MakerDAO may currently be the market leader, Arentoft told Cointelegraph that the firm is continually looking to expand into emerging economies, where the lack of traditional financial services and infrastructure and the high proportion of customers with smartphones are a fertile environment for DeFi projects: 

“We need to expand the target market. So, that's why we've been doing a lot of projects where we focus on emerging economies where Dai and the DSR make a lot of sense. We can go in and we can take people who have limited access to financial services or might not have trust in the local systems. And it leapfrogs them all of a sudden to being on a crypto platform because this just provides a better service for them.”

For many crypto finance projects using stablecoins, there are three target markets. The first is China, where the gigantic domestic payments industry is dominated by a few centralized companies. MakerDAO has already made significant in-roads in China, with a $24.7 million MKR token sale with Dragonfly Capital Partners in December last year. The second is Southeast Asia, with a particular focus on the Philippines where poor infrastructure and a steady flow of remittances from migrant workers provide excellent use cases for DeFi: 

“There are these guys we've worked with in Southeast Asia. We've been working with them for a little more than a year now. And they basically want to provide financial services via DAI in a digital wallet for their Southeast Asian community. So, when we started talking with them, we had 10 or 20,000 people on the platform. And now before we have even launched the full services, we have more than 600,000 people pass through KYC processes on the platform, using partnerships with several pretty big, major players in that region as well.”

The third market is the African continent where a combination of low trust in institutions and a severely underdeveloped financial infrastructure are commonplace. Africa appears to be something of a golden goose for many of the biggest crypto projects. 

Related: Blockchain Africa Conference: Education Is Key Crypto Adoption Driver

Facebook’s Libra project targeted the continent, and Jack Dorsey’s Square Crypto payments has a keen interest in exploring the African market. Dorsey even announced that he would spend significant parts of the year in Africa to better learn how to make a meaningful impact with cryptocurrency-enabled payments. Arentoft told Cointelegraph that Nigeria is the first market that MakerDAO wants to explore.