Monday, September 26, 2022

DeFi can take a hint from traditional finance to lower risks, says ex-Morgan Stanley exec

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Infinity Exchange CEO Kevin Lepsoe says if DeFi wants more institutional adoption in crypto, it must first nail the fixed income markets.

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The decentralized finance (DeFi) ecosystem scored another win against traditional finance, often called TradFi, with a former Morgan Stanley executive launching a DeFi protocol.

Kevin Lepsoe, the former head of structuring for Morgan Stanley, aims to deliver an institutional fixed income scheme that offers fixed and floating rates with his new project Infinity Exchange.

According to Lepsoe, his new project will allow DeFi traders to “implement arbitrage, pull liquidity from other protocols and hedge their futures rates basis risk positions.” 

The DeFi market is known for its volatility and, therefore, risk in digital asset trades. Trading with more options enables one to hedge risk and speculate along the entire span of a maturity curve. With more investable asset options available to trade along the said curve, users can move from risky and riskless assets more easily.

Lepsoe told Cointelegraph that introducing a crypto yield curve is important to the growth of DeFi trading because it lowers volatility.

“If there was a crypto yield curve, a more robust suite of products around stablecoins and a way to unify both TradFi and DeFi rates, crypto volatility would be markedly lower.”This development sets the stage for institutional traders and investors to continue pouring into the space. According to a recent survey from Bitstamp, institutional interest is still high. Eighty per of polled institutional investors believe that crypto will overtake traditional investment forms in the next decade. 

Related: Where today’s DEXs are falling short, explained

Lepsoe reiterated thatif the space wants more institutional investors to feel safer in the market, applying mechanics that already work within known markets is a place to start. “In TradFi, institutional investors are more active in the fixed income markets than they are in the equity markets,” Lepsoe said.

The CEO highlighted that institutional adoption will follow if fixed income markets are a thing of the future for DeFi.

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