CAPCO INSTITUTE JOURNAL #55

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DECENTRALIZED FINANCE (DEFI) FROM THE USERS’ PERSPECTIVE

 

UDO MILKAU | Digital Counselor

Decentralized finance applications have been surging with incredible speed for about two years. Some DeFi enthusiasts aim to recreate financial services on the foundations of distributed ledger technology and smart contracts, i.e., computer scripts executed on a distributed runtime platform. This perspective has a clear focus on technology. 

To shift the debate, this paper examines DeFi from the perspective of users and their contractual relationship with DeFi. Given that DeFi removes traditional intermediaries, one needs to ask which entity becomes the counterparty? One fundamental element of contract law is the “meeting of the minds”; hence we need to determine who are the interacting minds in a DeFi agreement? 

A second fundamental question is about the beneficiary, or in other words: cui bono? Finally, it is important to determine whether DeFi in fact provides “financial services” or whether it is simply a gaming table, upon which different tokens move positions? The question of the applicable law has to be answered by regulators, nevertheless, the analysis in this paper reveals that DeFi exhibits a structure with “central” entities and a trend towards “gamification”.

 
 
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