The Korean Ministry of Science and ICT and the Korea Internet & Security Agency has published a report covering the booming decentralized finance (DeFi) sector in detail.

“The DeFi market is growing rapidly,” states the report while covering the different aspects of the sector, including TVL, with the project Maker having the largest shares of the ecosystem with DEXs and lending services the largest share by category.

It further points to the number of unique active wallets (UAW) as well as customer deposits that show that the DeFi market is growing.

The research was conducted jointly by Block Media Co., Ltd. and Chain Partners Co., based on the Blockchain-based innovative finance ecosystem research service project of the Korea Internet & Security Agency (KISA). It also clarifies that this does not represent the official opinion of the government.

The report ‘Blockchain-based innovative finance ecosystem research’ gives a brief introduction of different DeFi projects, including blue chips like AAVE, Uniswap, Sushiswap, and Synthetix.

“DeFi aims to build a financial system in the form of P2P without a central agency or intermediary based on smart contracts of blockchain technology.”

While DeFi is mainly used in the mortgage loan sector, it noted that “there is high hope that it can be expanded to many financial sectors such as asset management, derivatives, and insurance in the future.”

“In fact, there is also the possibility of replacing a large part of the work of traditional financial institutions,” states the report only to mention that “there is still not much demand for DeFi in real life,” because of the infrastructure which is not easy to build. Additionally, the goal of providing financial services to everyone without a bank account is still a long way to go.

As for all the money and interest focused on DeFi, that is because there is a lot of demand for investment purposes — “many investors are paying attention to DeFi on the news that profits of tens to hundreds of percent are generated in the era of low-interest rates,” with many similarities with the derivatives market.

The report says that the market was created with good intentions allowing anyone to easily use financial services such as loans, transactions, and investments without unnecessary intermediaries.

But there can, of course, be side effects, as was the case with ICOs, which the report says was “a very good system for start-ups where it is difficult to raise funds and investors who are difficult to recover investments in the middle.”

With DeFi, the entry barrier is too high, too, as it requires Metamask. Not to mention, there is no customer center. In other words, although DeFi has relieved credit risk to some extent, it is also a homework that a lot of management risk still remains, it reads.

With no obligation to verify customer identity (KYC), there is a high concern that it could be used for illegal money flow as well. As the scale of DeFi increases, regulatory authorities have no choice but to increase the monitoring of DeFi, “which may lead to a contraction of the DeFi market,” it said. The report reads,

“It can be seen that DeFi is performing a more fundamental digital transformation in that it is attempting the maximum amount that can be implemented in a program for financial logic.”

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