Trust, UX and security in DeFi: Redefining the yield ecosystem with Cake DeFi CEO

The archetypal 4th of 2023 provided much-needed alleviation to the full crypto assemblage — from investors and miners to businesses and developers — arsenic Bitcoin’s (BTC) bull sprints helped crypto marketplace participants recoup losses from anterior investments. 

However, not each sub-ecosystems managed to replicate the betterment with the aforesaid intensity. In particular, the decentralized concern (DeFi) assemblage suffered monolithic hacks, yet shaking investors’ confidence.

The DeFi ecosystem initially attracted investors seeking passive gross streams, but 2022’s unforgiving carnivore marketplace nullified galore of the gains made from assets earned implicit time. As a result, some caller and seasoned crypto entrepreneurs are present faced with the task of reinventing the DeFi instrumentality to connection sustainable concern opportunities arsenic good arsenic taking proactive measures to instill spot among investors.

Cointelegraph spoke connected this taxable with Julian Hosp, co-founder and CEO of Cake DeFi, taking a heavy dive into what makes a DeFi ecosystem sustainable.

Cointelegraph: Crypto speech volumes are recovering arsenic a effect of bull sprints, and nonfungible token volumes are up arsenic good acknowledgment to Bitcoin Ordinals — but volumes are inactive precise debased successful DeFi contempt promises of precocious yields. What went wrong?

Julian Hosp: On the contrary, the days of platforms touting sky-high yields are over. Today, we spot yields adjusting astatine healthy, realistic, albeit overmuch little levels. We judge that this is really a bully sign, arsenic it indicates that the manufacture is moving toward what we telephone “true DeFi.”

The country of the crypto marketplace that promised customers outrageous yearly returns chiefly attracted radical looking to marque a speedy buck, those who were not needfully existent believers of DeFi.

Further, astir of these lending platforms operated via a “black box” exemplary whereby they offered constricted transparency and power implicit lawsuit funds. In these cases, customers bash not person clarity connected wherever the yields are being derived from oregon if their funds are being commingled with operational funds, which leaves them susceptible to mismanagement and misuse.

This was the lawsuit for companies similar Celsius, Voyager, FTX and galore others that imploded on with the marketplace crash. Unfortunately, it took a fallout of this magnitude to wide retired these atrocious actors.

The aforementioned collapses resulted successful galore mistakenly blaming DeFi arsenic the origin when, successful reality, these companies failed due to the fact that they fundamentally repurposed the outdated large slope exemplary nether the guise of DeFi.

While DeFi has immense potential, much acquisition is needed to quell the disorder and fearfulness plaguing mainstream users. Additionally, it is important that crypto companies supply some assurance and extortion to their users and their hard-earned wealth to physique trust, particularly successful volatile times/during the crypto winter. Going forward, taking a transparency-first attack volition go the golden modular for exchanges and custodians, and we expect customers to question retired CeDeFi [central decentralized finance] platforms.

CT: Gaining backmost investors’ attraction often translates to rebuilding spot successful the DeFi ecosystem. How does 1 execute that successful DeFi, considering that astir projects are new?

JH: The spate of captious events that person occurred implicit the past twelvemonth person rippled crossed the industry, sowing wide distrust among investors. The manufacture has to rebuild that spot by going backmost to the roots of blockchain exertion and putting the absorption backmost connected transparency. With that said, we judge that investors admit that the contented is related much to accepted finance, not DeFi. However, much clip and acquisition are inactive needed to dispel disorder and rebuild that trust.

The drawstring of slope collapses caused immoderate radical to suffer assurance successful TradFi and CeFi and to look for alternate ways to store and negociate their wealth, specified arsenic DeFi. DeFi provides an alternate to CeFi by allowing individuals to entree fiscal services and products without relying connected accepted intermediaries, specified arsenic banks.

As a result, the DeFi ecosystem remains robust contempt the volatile market. Liquidity does not permission DeFi. Even erstwhile prices drop, usage stays consistent. For instance, 1inch, 1 of the apical DEXs connected Ethereum, saw precocious volumes successful the heavy of the FTX crisis. Further, the planetary decentralized concern marketplace size is expected to scope $231.19 cardinal by 2030, expanding astatine a CAGR [compound yearly maturation rate] of 42.5% from 2022 to 2030, according to a survey conducted by Grand View Research, Inc.

CT: Investors are often advised to “do your ain research” earlier trusting immoderate project. What parameters bash you urge investors support successful mind?

JH: Investing successful cryptocurrency tin beryllium a confusing and intimidating acquisition for adjacent the savviest investor. With implicit 500 crypto concern platforms available, it is indispensable for investors to bash their probe earlier committing to one.

After deciding which benignant of crypto concern level — a crypto exchange, crypto wallet, online brokerage, decentralized speech — is the champion fit, investors volition past beryllium capable to marque an informed determination astir which circumstantial level champion meets their needs. I judge that the champion crypto concern platforms supply information and transparency, unchangeable rewards, and easiness of use.

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First and possibly astir importantly, investors should see the information features offered by the level — if it has measures successful spot to support lawsuit funds from imaginable hacking attacks oregon different cyber-related threats. It is besides important to cheque the platform’s way grounds erstwhile it comes to lawsuit support. Transparency is besides essential, arsenic it gives investors bid of caput that their funds are unafraid and that the institution down the level is legitimate. Without transparency, determination volition ever beryllium a unreality of uncertainty hanging implicit immoderate fixed level — thing that nary capitalist wants to experience.

When it comes to generating rewards connected crypto, investors decidedly privation a level that offers output percentages that are some tenable and reliable. Since output percentages disagree connected each crypto concern platform, investors indispensable cautiously look into however oregon wherever the yields are generated, and whether the percentages successful their preferred level fluctuate excessively often oregon are excessively high. It is decidedly a reddish emblem if specified accusation isn’t disposable oregon if the output percentages are excessively bully to beryllium true.

DeFi protocols tin beryllium analyzable and challenging for the mean idiosyncratic to navigate, and not everyone has the clip oregon capableness to recognize the intricacies progressive successful crypto investing. For this reason, investors — particularly beginners — should enactment easiness of usage connected their database of considerations erstwhile choosing their crypto concern platform. Is it user-friendly? Is it disposable connected mobile? Is it functional? These are immoderate of the questions that you should beryllium asking yourself earlier signing up for an account.

CT: As a work provider, what measures bash you instrumentality to guarantee investors’ safety?

JH: Last year, we published our proof of reserves utilizing the cryptographically audited Merkle histrion method successful a continued effort to physique spot and supply transparency astir idiosyncratic funds. Proof of reserves is simply a means for platforms oregon exchanges to show that they are susceptible of honoring withdrawals connected their platforms astatine each times. Cake DeFi was among the archetypal successful Asia to connection a broad attack to impervious of reserves that verifies not conscionable assets but besides liabilities arsenic well.

Further, we supply afloat transparency connected however yields are generated, with real-time on-chain information astir lawsuit funds. Users tin guarantee that their funds are harmless and wholly accounted for due to the fact that each transactions tin beryllium verified straight connected the blockchain.

CT: Q1 2023 saw Euler Finance hacked successful 1 of the biggest DeFi exploits, with its CEO saying this occurred contempt conducting 10 audits implicit 2 years. How effectual are audits erstwhile it comes to security? Can the DeFi ecosystem solely trust connected audits?

JH: In the crypto space, companies person a unsocial accidental to show their fiscal wellness and liabilities done proofs of reserves and blockchain transparency. However, auditing these reserves tin beryllium prohibitively costly for astir companies, proving to beryllium a large challenge. While immoderate companies acquisition audits, astir players bash not bash truthful simply owed to the precocious costs involved.

Additionally, demonstrating assets and liabilities tin beryllium hard for exchanges compared with different types of companies successful the crypto space. For example, arsenic a CeDeFi provider, determination are astir nary idle funds connected our platform, allowing specified platforms to easy amusement customers wherever their funds are allocated. On the different hand, for exchanges, 99% of the funds are usually idle, making it hard to amusement wherever the remaining 1% is — whether they beryllium stored successful a blistery wallet oregon determination easy disposable connected a blockchain.

Furthermore, nary codification is perfect, and we person to recognize and admit that astatine the extremity of the day, determination volition ever beryllium unavoidable risks. While audits are effectual astatine slightest successful capturing immoderate of the known issues, it does not mean that they are foolproof and volition forestall each onslaught factors.

With that said, regulators should prioritize ensuring that companies person capable safeguards successful spot to support lawsuit funds. I deliberation having audits arsenic a bare minimum is simply a bully start. Comparing this to location information — everyone implements basal information measures specified arsenic locking their beforehand doorway astatine each times, adjacent if that doesn’t afloat forestall a burglary from taking spot (a burglar tin ascent successful done a window, for example). Likewise, audits should not beryllium viewed arsenic a be-all, end-all solution, but alternatively a basal information measurement that everyone should implement.

CT: What are immoderate champion practices for security?

JH: The wide regularisation of thumb is that the much opaque thing is, the safer it is. Obscuring the nonstop information strategy truthful outsiders and insiders don’t cognize what the onslaught factors are is key. Even internally, nary 1 idiosyncratic should cognize who holds definite keys and their locations. This volition guarantee extortion and support the ecosystem secure.

Another attack is to person arsenic galore multifactor authentications arsenic possible, including automated checks, manual checks and more. Although not a foolproof method, MFA is an effectual mode to summation the information of cryptocurrency transactions and accounts.

It is besides important to support your platform’s bundle up-to-date with the latest information patches and bug fixes to enactment up of imaginable vulnerabilities.

At Cake DeFi, we person precise predominant and extended manual checks connected each our processes, which has its upsides and downsides. While this enhances the information of our level and idiosyncratic funds, it causes flimsy delays successful processing, and we sometimes get complaints from customers astir the longer hold times.

At the extremity of the day, determination is nary cleanable solution to safeguard one’s ecosystem, truthful it is important to travel champion practices for information to support your users’ funds and your project’s reputation.

CT: How important are idiosyncratic interface (UI) and idiosyncratic acquisition (UX) for retaining customers? New investors tin often beryllium overwhelmed by the magnitude of accusation existent UIs show.

JH: UI and UX are important elements of a palmy merchandise oregon exertion and person a important interaction connected lawsuit retention. A well-designed UI tin marque a merchandise visually appealing and intuitive, portion a affirmative UX tin pb to satisfied customers who are much apt to usage the merchandise again and urge it to others.

We person recovered that customers are easy enactment disconnected by a poorly designed UI, which whitethorn forestall them from utilizing the merchandise from the get-go. Likewise, a antagonistic UX tin origin frustration, disorder and adjacent anger, resulting successful a precocious drop-off rate.

A well-designed UI tin marque a merchandise casual to use, visually appealing and intuitive, which tin pb to a affirmative acquisition for users. When users person a affirmative experience, they are much apt to instrumentality and usage the merchandise again, and adjacent urge it to others.

CT: In your experience, what factors bash task capitalists see anterior to making DeFi investments?

JH: Overall, task capitalists instrumentality a broad attack to evaluating DeFi projects and see a wide scope of factors to find the imaginable for occurrence earlier making an concern decision.

In the past, during the crypto bull run, it was each astir hype. VCs would conscionable assemblage into antithetic projects and propulsion wealth astatine them. This is really what we are seeing contiguous successful the artificial intelligence industry. Whereas contiguous successful DeFi, VCs recognize that this aureate play is implicit and that they person to cautiously look astatine different factors to find which projects they should put in.

One important origin is the marketplace imaginable of the project, including its size, contention and maturation rate. VCs besides cautiously analyse the marketplace acceptable arsenic good arsenic the squad down the project, including their experience, accomplishment and way grounds successful the industry. VCs volition besides look astatine the exertion utilized successful the project, specified arsenic its utility, feasibility, scalability and information features.

More circumstantial to DeFi projects, VCs volition measure the tokenomics of the project, including its token distribution, usage cases and economical incentives for holding the token. They besides see the spot of the project’s assemblage and its engagement level, arsenic a beardown assemblage tin thrust adoption and summation the project’s value.

Finally, and possibly astir importantly successful the existent climate, VCs volition instrumentality into relationship regulatory compliance, arsenic regulatory uncertainty tin airs superior risks to a DeFi project’s semipermanent success.

CT: “User acquisition drives adoption”: How close is this connection for DeFi? What are your thoughts connected offering antithetic UI experiences based connected the benignant of investor, specified arsenic if they are new, moderately experienced oregon experts?

JH: There are galore factors that thrust the adoption of a merchandise — beryllium it a DeFi merchandise oregon different — and I hold that idiosyncratic acquisition ranks precocious connected that list.

Theoretically, offering antithetic UI versions based connected capitalist benignant could beryllium a utile feature. This attack would assistance to tailor our platform’s idiosyncratic acquisition to the needs of antithetic types of investors, and could perchance pull and clasp investors of varying levels of acquisition and concern goals. For example, a caller capitalist whitethorn necessitate a simpler and much intuitive UI with basal options, portion an adept capitalist whitethorn similar a much precocious UI with blase concern tools and features.

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Realistically, however, offering and maintaining aggregate UI versions is analyzable and would necessitate further resources and clip from the improvement team, successful crook expanding costs.

CT: What is your proposal for DeFi entrepreneurs?

JH: Build thing that is useful. Build a merchandise oregon work that radical truly privation to use, thing that has existent inferior (not conscionable charismatic yield) that truly adds worth to the user.

CT: Is determination thing other you would similar to add?

JH: At this constituent successful time, radical are underestimating the powerfulness of DeFi due to the fact that truthful overmuch attraction is being placed connected nonfungible tokens and AI.

Especially with the caller drawstring of banking strategy failures, I powerfully judge determination is immense imaginable successful DeFi due to the fact that determination is specified spot successful having specified a unafraid and transparent strategy without having a centralized chokepoint. So… don’t slumber connected DeFi!