Decentralised Finance: Defining the future of finance

Adrian Keller
Partner and Leader Audit for Blockchain, PwC Switzerland

Bastian Stolzenberg
Blockchain Expert Assurance, PwC Switzerland

Decentralised Finance (DeFi) has experienced tremendous growth since mind-2020. While it is still in its early days, DeFi has shown us that decentralising financial services at scale is possible. In this report, we have set out to share some key considerations in the area of governance, security, tax and regulatory that we believe the DeFi ecosystem should take note. We hope that the insights in this document will be a positive contribution to the collective efforts to build the future of finance and money. 


In 2008, as the world stared into the abyss of the global financial crisis then playing out, Bitcoin enthusiasts saw it as presenting the possibility of a new, wholly independent ecosystem of electronic cash. Advocates made bold claims about how Bitcoin would not only change the operation of the financial system, but also impact previously accepted ideas around data, privacy, and government. 

The Bitcoin concept was further extended in 2013 with the launch of Ethereum, which provided improvements to a range of the original Bitcoin features. One of these was the concept of the smart contract. Bitcoin is principally known as a transmissible store of value, recorded on a decentralised, shared ledger. However, because Bitcoin is written using code, conditions can be attached to the transfer of value, creating a framework for the electronic settlement of contracts. This type of framework opens up to the potential for perfect execution of an agreement between parties, where payment is released simultaneously upon the delivery of goods or services. Such a capability has some very direct and relevant use cases in commerce generally – but more especially in financial services. 

Ethereum very much heralded the advent of DeFi, by providing a trusted framework upon which computer code can be deployed, executing instructions exactly as written. This framework can be linked to the control of digital assets, which in turn can be used to create financial products. The providers of financial services, such as mortgages, do exactly the same. The difference is that, to date, it's been down to the financial intermediaries and regulators to ensure the products operate as intended. In DeFi, by contrast, it's down to trusting the code. 

What makes DeFi unique? 

One of the biggest draws to the whole idea of using blockchain technology to reinvent the finance space lies in how the market can become permissionless and open to anyone. A further attraction is the concept of composability, which means anyone can mix and match any existing DeFi offering to build a new one. The composability of such a network, effectively made of blocks of interlocking components, also means that newer innovations and needs in the finance space can be easily built on top of the network and plugged together, with everything being governed by smart contracts.

Smart contracts are programmes that automatically execute an action when a certain event occurs. This allows users to define rules governed by technology. Conditions can be defined, which, if met, will automatically trigger other actions such as sending or receiving funds, or even the execution of other smart contracts. This type of automation enables the delivery of existing financial services over blockchain networks and allows for the creation of new services where the rules and conditions of execution are guaranteed by the network itself. The implications of using smart contracts in this way are incredibly profound for financial services.

With smart contracts being key to DeFi applications, most DeFi projects are currently built on the Ethereum network. This is due to the widespread availability of developer capability to work with Ethereum's Solidity programming language that supports the creation of the necessary smart contracts. However, there are now many other blockchain networks that allow DeFi applications as well.

The DeFi landscape

DeFi projects continue to be lucrative ventures. For many of these projects, the development teams retain a significant portion of the token supply, or the electronic shares used to control and secure the operation of the mainnet. This not only means that the team can benefit from speculation on prices, but also allows the firm to be party to the correct operation of the protocol, earning it rewards for effectively securing the proper operation of the network. 

Below are some areas currently covered in DeFi space: 

Digital assets whose price is pegged to the value of the underlying reserve asstes to offer a cryptocurrency with little volatility in the price of the coin itself (DAI, sUSD)

Exchanges that enable users to trade their digital assets peer-to-peer without any centralised intermediaries (Uniswap, SushiSwap, Balancer, IDEX, Loopring, Bancor)

One of the key functions in today's current financial system. With blockchain technology, users are now able to carry out such activities without intermediaries (MakerDAO, Compound).

Allows users to get coverage for certain risks (mainly against smart contract failures and the risks related to their deposited crypto assets) without any centralised insurance intermediary (Nexus Mutual). 

Contracts whose value is derived from the performance of underlying assets. Crypotcurrency-based synthetics allow users to trade the values of various assets on the blockchain network without having the need to hold the underlying assets (Synthetix, dXdY).

These aggregators connect to the various protocols, allowing users to get the optimal yield/market rates for their transactions and creating more efficient markets in the DeFi ecosystem (yEARN Finance, Harvest Finance, ValueDeFi). 

What the future of DeFi holds

In recent years, an array of macro and technological trends have been contributing to the exponential growth of DeFi. Whether in the form of decentralised exchanges, lending and borrowing of different asset types or through insurance products, DeFi is evolving and expanding swiftly to mirror the traditional financial services ecosystem. This new form of decentralised financal technology may eventually have an impact on the future of centralised finance entities, with DeFi potentially being seen as an alternative that's cheaper, quicker and more relevant. 


Contact us

Adrian Keller

Adrian Keller

Partner and Leader Audit for Blockchain, PwC Switzerland

Tel: +41 58 792 23 09

Bastian Stolzenberg

Bastian Stolzenberg

Director, Blockchain Assurance, PwC Switzerland

Tel: +41 58 792 6877