Anton Bukov explains why DeFi is the future of finance

In his address at DEVWorld in Amsterdam on February 28, 1inch co-founder Anton Bukov shared his insights into the future of DeFi as a promising financial landscape.

DeFi is transforming the finance landscape thanks to its transparency, composability and efficiency, Anton explained.

“Transparency means that you can check and see the balance of every account,” he said. “You could see the total balance of the system. You could see any internal accounting elements which are happening inside smart contracts. And this means that if any system has some number of users, if they have some deposits, you can always check if the whole system is solvent and sufficient - if everyone can withdraw their deposits or there is a gap in liquidity.”

According to Anton, the main idea of composability is that every on-chain project can be used by any other project, for building a new solution on top of it either off-chain or on-chain.

“When we launched the 1inch aggregator, we discovered that there were multiple decentralized exchanges, but each DEX is actually a smart contract, which is like a backend and frontend,” he recalled.  “We came up with the idea that no website has exclusive access to their own smart contracts. This means that anyone can build a frontend for smart contracts which are deployed by someone else.”

“So, 1inch was a separate frontend for existing smart contracts but we also shipped our own smart contracts,” he went on to say. “This is how composability works.”

Meanwhile, efficiency is arguably the most important aspect of DeFi, Anton observed. “It's actually coming from a few points because liquidity is global,” he elaborated. “So, DeFi liquidity is actually global liquidity. It's not associated with any local market. It's not European, it's not American, it's not Asian. It's global. It's truly global liquidity and the only thing which drives this liquidity is a pure risk-reward game theory.”

Anton added that the absence of regulation was a major factor contributing to DeFi’s efficiency. “Regulation stifles innovation,” he charged. “Here, we don't have regulation - that's why DeFi is so innovative.”

Anton went on to discuss the main risks associated with the DeFi space - self-custody risks and protocol risks. He noted that the use of sophisticated multisig solutions and hardware wallet could mitigate self-custody-related risks.

When it comes to protocol risks, it’s vital for protocols to be thoroughly audited. “If a protocol has had audits, if it's been working for a long period of time and has a big number of users and their deposits, it's probably much safer than a protocol that was deployed yesterday,” he said. 

Still, according to Anton, “there's no other way to guarantee 100% safety for smart contract code, to guarantee it has no bugs.”

“At 1inch, we have code values,” he said. “When we develop protocols, we try to make their code base as compact as possible and have as many audits as possible. This is giving us an extra feeling of protection. Less code and more audits is safer than more code and fewer audits.”

In the final part of his presentation, Anton discussed smart contracts engineering.

“The code base should be as compact as possible, but it should also be as efficient as possible because efficiency here is actually not about micro optimizations,” he said. “It's more about high-level data structures and algorithms and the computational complexity of your code and storage complexity of your code. Blockchains have very limited computational capacity.”

Finally, Anton predicted that the computational complexity of blockchains is likely to be limited “almost forever.” “So, we should expect numbers to grow, but they will not grow dramatically, they will not grow millions of times and we will not have much more computational power per user,” he concluded.

A full video of Anton's presentation can be viewed here.

Stay tuned for more insights from 1inch!