What is DeFi?

Tommy Johnson, founder of PsyOptions, explains what DeFi is, the biggest risks and rewards of investing in it, and his predictions for the future.

Tommy is a serial entrepreneur and software engineer. He began following Solana in early 2020 prior to the mainnet beta. Tommy and the distributed PsyOptions team won the first Solana season hackathon.

PsyOptions aim to become one of the foundational DeFi primitives on the Solana blockchain by offering completely trustless American style options for any SPL token.

What is DeFi?

DeFi is an abbreviation for decentralised finance, which is based on peer-to-peer interactions and trading on distributed systems, rather than the centralized systems of traditional finance.

How does DeFi work?

DeFi runs on blockchains, which are distributed databases running on different computers all over the world. DeFi applications are programs running on those blockchains that allow users to transfer, hold, lend, and borrow assets, and trade with each other.

What are the biggest risks and rewards in investing in DeFi?

One of the biggest risks we’ve seen over the past year was when $600 million of crypto was hacked from DeFi applications – getting scammed or locking assets into smart contracts or programmes that have not been audited is a risk as well.

DeFi regulation is a hot topic – in your opinion, is it safe for consumers to participate in?

The majority are safe – especially blue chip companies, or ones where the team behind the project have put themselves out there – that mitigates concerns – even if you can’t read source code to make sure the contract is doing when it says.

Why are there so many developers in the space with hidden identities?

For some teams making the decision to be anonymous is a double-edged sword because they make that decisions either because they might be trying to pull a get-rich quick scheme, or there is a lot of grey area around regulatory concerns. Depending on the jurisdiction they’re located in, they might not have clear guidelines or information, so they remain anonymous for their own wellbeing.

How did your own career in DeFi begin?

I’ve been a software engineer for about 9 years, and I got really into crypto in early 2017 with the ICO craze. Once I saw the promise of Solana and their blockchain, a lightbulb went off.

At the Solana Hackathon in February 2021 we took first place in the Solana Serum Defy Hackathon, and that is what kick-started everything – the interest in the project was eye-opening.

What does the future of DeFi look like?

I think the derivative space is only going to grow over time with the increased demand. I think we’re going to see a lot more innovation, and as blockchains get faster they scale better. We’re going to expand to have more traditional finance feel in the decentralized finance world. The amount of innovation is insane and I think we’ll see a lot more of that in 2022.

What is one thing you wish that more people knew about DeFi?

With DeFi you have distributed systems that transcend borders and jurisdictions, and the demand for these assets are so much higher than traditional finance, because you are able to access a market that is so much bigger than what you’re exposed to normally.

This episode of What’s on the Block? is hosted by Maxine Ewing.