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Establishing regulations is essential for the growth and development of DeFi projects, indicating that layers of centralization are necessary before achieving full decentralization.
The panelists acknowledged that DeFi inevitably requires a degree of centralization initially to ensure its proper “maturation.” (Photo: Olivier Acuna/Modified by CoinDesk)
Key points:
- A discussion at Consensus Hong Kong 2026 posited that most DeFi protocols must undergo a practical, temporarily centralized “incubation phase” prior to achieving safe decentralization.
- Speakers contrasted Ethereum’s foundational layer as a neutral “government” with layer 2 creators functioning like growth-oriented businesses that utilize admin keys and safeguards to shield nascent protocols from early vulnerabilities.
- Industry experts emphasized that institutional adoption necessitates a professional, rule-based framework that compromises some initial decentralization, allowing protocols to evolve and endure scrutiny from global financial systems.
HONG KONG — During the Consensus Hong Kong 2026 conference, discussions regarding decentralized finance (DeFi) shifted notably toward a practical perspective.
The panel titled “How Decentralized is DeFi Really?” witnessed industry leaders deconstruct the “pure decentralization” myth in favor of recognizing temporary centralization as a vital survival strategy.
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The “decentralization illusion” illustrates the tension between DeFi’s permissionless principles and its operational realities. Although the aim is to eliminate intermediaries through smart contracts, most protocols exist on a continuum rather than in a binary state.
Anand Gomes, head of Paradigm and Paradex, rejected the notion of binary decentralization, instead presenting the current condition of most protocols as a necessary “incubation phase.”
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Gomes famously compared the function of a protocol founder to that of a parent. “You want your kids to be strong and independent once they grow up,” he stated, “but that doesn’t mean you leave them unattended in their infancy.” For Gomes, employing admin keys and centralized safeguards in the initial 18 months is a fiduciary responsibility; a protocol compromised in its first six months has little chance of future decentralization.
This creates a clear distinction with Vitalik Buterin’s role as the architect of Ethereum’s foundational layer. Gomes depicted Buterin as the leader of a “government” (layer 1) tasked with ensuring stability through neutral, constitutional guidelines.
In contrast, layer 2 founders function as “businesses” centered on growth. While Buterin advocates for “stage 1” decentralization to keep the L1 as a “freedom machine,” Gomes asserted that founders must be “stubborn” in safeguarding their protocols during early susceptibility.
Glenn Woo, representing the infrastructure leader Blockdaemon, highlighted that as DeFi expands to fulfill institutional requirements, hardware and security demands naturally introduce layers of centralization.
Woo expressed his belief that for DeFi to withstand scrutiny from global clearinghouses like the DTCC, it must have professionalized, robust infrastructure that frequently replaces absolute decentralization with institutional-level reliability.
Benji Loh of Treehouse echoed this viewpoint, stating that temporary centralization is the “price of entry” for the Wall Street momentum necessary to support a strong ecosystem. He noted that even the most successful protocols only pursue the decentralized ideal after establishing product-market fit and stable trading infrastructure.
Arion Ho, CEO of ENI, remarked that the journey toward genuine decentralization should be built on “transparent rules” instead of immediate, chaotic oversight. “Decentralization is not merely about the type of governance we’ve been practicing,”
Ho explained, “it’s about minimizing excessive human intervention.” He also indicated that by initiating with a rule-based, verifiable framework hard-coded into the system’s essence, founders can ensure that when the keys are eventually transferred to the community, the transition remains safe and sustainable.
As major institutions like Goldman Sachs shift multitrillion-dollar operations on-chain, the panel’s consensus was unmistakable: the objective is no longer solely to eliminate intermediaries, but to guarantee that when the “parental” safeguards are ultimately removed, the protocols are sufficiently mature to endure the examination of global markets.
