In the realm of decentralized finance (DeFi), developers are being called upon to take on new roles. Ben Nadalesky, CEO of Solstice Labs, pointed out that, given the ongoing string of security breaches, developers must act like financial managers in order to regain the trust of institutional investors.This is also related to the “identity crisis” facing Bitcoin and can be seen as a crucial recommendation for the maturation of the DeFi market as a whole. There is a growing recognition that, in addition to technological progress, a sense of financial responsibility and a focus on risk management are essential.In particular, repeated exploits (attacks exploiting vulnerabilities) in DeFi protocols are casting a significant shadow over investor sentiment. To break out of this situation and build a more stable market, the developer community will need to fundamentally reevaluate its approach.In this article, we will delve deeper into the background of this proposal and the specific changes required of DeFi developers.
The Current State of Bitcoin and DeFi
It has been pointed out that Bitcoin is currently facing an “identity crisis.” This suggests that its original purpose and market positioning are becoming uncertain within the evolving crypto assets ecosystem.Meanwhile, decentralized finance (DeFi)—a system that provides financial services on the blockchain without relying on centralized administrators—is quietly making inroads.
DeFi holds the potential to revolutionize the financial sector by eliminating the need for intermediaries such as banks. However, behind its rapid growth, numerous challenges are emerging. In particular, security vulnerabilities have become a major factor undermining the credibility of the entire market.
The Background of Institutional Investors’ Loss of Trust
In recent years, large-scale security breaches have occurred frequently in DeFi protocols. This has led to the outflow of substantial funds and caused losses for many investors. These incidents have become a major factor causing institutional investors (corporations that manage massive amounts of capital, such as pension funds and hedge funds) to hesitate about entering the DeFi market.
Ben Nadalesky, CEO of Solstice Labs, has criticized current developers for “acting like ‘Tech Bros.’” This term refers to a situation where developers prioritize technical aspects alone, while neglecting risk management and customer protection—essential considerations for financial products. Source
In financial markets, investor trust is paramount. However, it can be said that the current state of DeFi presents a major barrier to establishing that trust.
The Importance of a Financial Manager’s Perspective
CEO Nadalesky emphasizes the need for DeFi developers to “act like financial managers.” This means not only writing code but also deeply understanding that the services they provide are financial products and taking responsibility for them.
Financial managers prioritize aspects such as risk assessment (analyzing potential losses associated with investments), compliance (adherence to laws and regulations), and the protection of client assets. Introducing these perspectives into DeFi development is expected to lead to the creation of more robust and reliable protocols.
The fusion of technical and financial expertise is essential for the next phase of growth in the DeFi market. This fusion will be the key to attracting new inflows of capital from institutional investors.
Transformations Required of DeFi Developers
As a specific transformation, strengthening risk management frameworks is a top priority. Developers must identify potential vulnerabilities from the protocol design stage and implement countermeasures. It is also crucial to conduct regular, rigorous third-party security audits (in which experts verify the security of smart contracts).
Furthermore, greater transparency is required. Clarifying the protocol’s operational status and the flow of funds, and establishing mechanisms that allow users to easily verify this information, will help build trust. Prompt and honest disclosure of information in the event of unforeseen circumstances is also essential.
Furthermore, from the perspective of user protection, compliance with regulations such as KYC (Know Your Customer) and AML (Anti-Money Laundering) should be considered. This will reduce the risk of fraudulent use and foster a healthy market environment.
Strengthening Security Measures
Strengthening the security of DeFi protocols is an urgent priority. Code bugs and design flaws can serve as breeding grounds for hacking. Therefore, developers should implement more rigorous testing processes and conduct ongoing code reviews.
It is also important to formulate incident response plans. Procedures must be established in advance to minimize damage and ensure rapid recovery in the event of a security breach. This approach is consistent with the crisis management practices typically followed by financial institutions.
The introduction of insurance products will also help protect users. If insurance related to DeFi protocols is available, it will be possible to compensate users’ assets to a certain extent in the event of a loss.
Regulatory Compliance and Market Maturity
An appropriate regulatory framework is essential for the healthy development of the DeFi market. As regulations on crypto assets are tightening in many countries, DeFi is increasingly becoming subject to these regulations as well. Developers are expected to closely monitor these regulatory trends and proactively respond to them.
For example, international regulations such as the Travel Rule—an international agreement requiring the collection and sharing of sender and recipient information when transferring crypto assets—may also impact DeFi. Compliance with these rules is crucial for ensuring harmony with the global financial system.
At first glance, complying with regulations may seem to limit development freedom. However, in the long term, it serves as the foundation for enhancing market credibility and attracting more institutional investors and general users. Dialogue and cooperation with regulatory authorities are essential for realizing a mature DeFi market.
Future Outlook for the DeFi Market
The DeFi market holds great potential due to its innovative nature. However, to fully realize this potential, it requires not only technical expertise but also a sense of financial responsibility and professionalism. By incorporating the perspective of financial managers, developers will help DeFi evolve into a safer and more reliable financial infrastructure.
The entry of institutional investors will bring stability and liquidity to the DeFi market. To achieve this, ensuring security, thorough risk management, and proactive compliance with regulations are essential. We hope that by overcoming these challenges, DeFi will become a financial service that truly contributes to society.
[Source: Original Article]
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