It's been 3 days since the Genius Act was signed into law by President Donald Trump and there's been lots of speculation on how this bill affects the cryptocurrency ecosystem in the broader sense, especially decentralized finance (DeFi).
Truth is, the Genius Act does not directly address or regulate decentralized finance as it focuses on centralized stablecoins issuers. However, there remains areas of concerns such as the legal requirements of issuers to freeze/blacklist addresses at the will of regulators.
Certainly, this can be argued as important for fighting crimes but anyone who isn't deluded to think the government only cares about truly fighting crimes knows that this requirement poses significant risks to individual finances.
Centrally issued stablecoins are much more dangerous than traditional banks because being borderless by default means that it is the default system for moving value around, globally and that in itself, is a significant threat to individuals finances as users are essentially locked-in to one-system that can easily break them at choosing.
When tokens like this dominate decentralized finance (DeFi) stablecoins volume, DeFi protocols effectively become partially centralized as issuers of these tokens can directly influence the capital flows in these protocols and the broader ecosystem.
Cracking safe yield, with decentralized stablecoins
It's no news that decentralized finance still lacks safe yield.
Now, certainly, one may be tempted to say that there are multiple yield options that exist and have been operating for years but the truth is that most, if not all of these yield options involve significant third-party risks that makes it not safe yield in the decentralized sense.
For instance, most stablecoin yield options revolve around USDT and USDC and both stablecoins are centralized, even the supposed decentralized stablecoins are partly backed by USDC and that in itself defeats the purpose of seeking yield through DeFi ecosystems.
That said, some other yield options involves lending markets that are heavily dominated by ETH-based collaterals and that gives room for significant capital risks as stability is reliant on a single asset market.
This means that despite the several billions of dollars in total value locked (TVL) in DeFi protocols, the ecosystem lacks “safe yield” that isn't just sustainably sourced but also void of centralized risk factors.
Safe yields in the decentralized finance (DeFi) context includes:
—Yield based on revenue from products or services not necessarily tied to the asset barring said yield.
—Low concentrated exposure to volatile assets.
—Zero centralized assets.
—Stability.
Decentralized finance protocols currently lack this. Cracking safe yield is crucial to DeFi’s significant market penetration. It's now an urgency for DeFi protocols to make the necessary adjustments as growing stablecoins adoption will only lead to more centralized players capturing significant market share and that is bad for the security of the ecosystem.
Centralized stablecoins are great means for capital injection but DeFi protocols have to adjust to functioning independently and offering yield solutions with zero exposure to said market.
These yield solutions have to come from decentralized stablecoins and said yield have to be sustainably sourced! This means that building for revenue is now more crucial than ever. Major traditional players are moving into crypto, fast, and begs the need to ensure accelerated developments of DeFi avoid centralized points of failures or attacks.