The use of decentralized finance—commonly known as DeFi—continues to expand. DeFi uses blockchain technology and crypto assets to allow users to conduct transactions that don’t require an intermediary, such as a bank or other third-party financial institution.
In a traditional financial transaction, one party might use a bank check or a mobile payment service to pay another. In another instance, a bank customer might deposit money into a savings account and receive interest on their balance; the bank might then lend that money to another customer at a higher interest rate. Using DeFi, on the other hand, one user might pay another directly for a good or service in a peer-to-peer transaction. Or one user may lend money to another, collecting interest directly from them. The two parties involved conduct transactions through the decentralized blockchain ledger using crypto assets.
While this system offers advantages, users clearly must be able to trust that their assets held in the DeFi space are secure and free from fraud and attacks. The DeFi environment is nothing like the traditional finance space. DeFi projects are probably not headquartered anywhere, have no CEO, and may not have any corporate governance rules in place.
To bring greater transparency and reliability to this area, the accounting profession is on the front lines in helping to drive clarity and certainty in the DeFi ecosystem. Auditing the assets under management by DeFi organizations is one of the challenges they are tackling. Learn more in this video featuring Ron Quaranta, chairman and CEO, Wall Street Blockchain Alliance, and Sean Stein Smith, DBA, CPA, PhD, professor, Lehman College.