This article provides a detailed response to: What implications does the rise of decentralized finance (DeFi) have on Make vs. Buy decisions in the financial services sector? For a comprehensive understanding of Make or Buy, we also include relevant case studies for further reading and links to Make or Buy best practice resources.
TLDR DeFi's rise complicates Make vs. Buy decisions, demanding strategic evaluation of in-house development versus external partnerships, considering regulatory, risk, and operational factors.
TABLE OF CONTENTS
Overview Strategic Implications on Make vs. Buy Decisions Operational Excellence and Performance Management Conclusion Best Practices in Make or Buy Make or Buy Case Studies Related Questions
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The rise of decentralized finance (DeFi) represents a paradigm shift in the financial services sector, fundamentally altering the landscape of Make vs. Buy decisions for organizations. This transformation is driven by the unique characteristics of DeFi—primarily its ability to offer financial services on a peer-to-peer basis, using blockchain technology to eliminate traditional intermediaries such as banks, brokers, and exchanges. For C-level executives, understanding the implications of this shift is critical for strategic planning, operational excellence, and maintaining competitive advantage.
Strategic Implications on Make vs. Buy Decisions
In the context of DeFi, the Make vs. Buy decision becomes increasingly complex. Organizations must evaluate the strategic importance of integrating DeFi capabilities in-house versus leveraging external platforms. Making this decision requires a deep understanding of the organization's core competencies, strategic goals, and the potential impact of DeFi on its value chain. For instance, a financial services organization with a strong foundation in technology and innovation may lean towards developing in-house DeFi capabilities to maintain control over its digital transformation journey and ensure alignment with its strategic objectives. Conversely, for organizations where technology is not a core competency, partnering with established DeFi platforms may offer a quicker, more cost-effective route to market.
The decision to Make or Buy in the DeFi space also hinges on considerations of regulatory compliance, security, and risk management. DeFi's current regulatory landscape is complex and rapidly evolving. Organizations choosing to develop DeFi solutions in-house must navigate these regulatory challenges, which requires significant legal expertise and resources. Buying or partnering, on the other hand, can mitigate some of these challenges by leveraging the expertise of established DeFi platforms that have already addressed these regulatory hurdles.
Furthermore, the choice between Making and Buying has significant implications for an organization's risk management strategy. DeFi platforms operate on blockchain technology, which, while secure, presents unique risks such as smart contract vulnerabilities. Organizations must assess their ability to manage these risks in-house versus the risk mitigation strategies employed by potential DeFi partners.
Operational Excellence and Performance Management
Operational excellence in the DeFi context requires a high degree of technological sophistication, including blockchain expertise, cybersecurity measures, and a deep understanding of the DeFi ecosystem. Organizations opting to Make DeFi solutions must invest in building or acquiring these capabilities, which can be a significant undertaking. This includes not only the initial development but also ongoing maintenance, updates, and compliance efforts. Performance management systems must be adapted to measure the success of DeFi initiatives, tracking metrics such as transaction volume, user acquisition, and cost savings compared to traditional financial services.
For organizations choosing to Buy or partner for DeFi capabilities, operational excellence focuses on the integration of external DeFi solutions with existing systems and processes. This requires a robust IT infrastructure and the ability to manage partnerships effectively, ensuring that external solutions meet the organization's standards for security, compliance, and user experience. Performance management in this scenario involves monitoring the performance of DeFi partners, assessing the impact on customer satisfaction, and measuring the return on investment of the partnership.
Real-world examples of organizations navigating these decisions abound. For instance, J.P. Morgan Chase & Co. has explored the creation of its own digital coin, JPM Coin, indicating a Make approach towards leveraging blockchain and DeFi for improving payment transactions. On the other hand, smaller financial institutions and fintech startups may opt to partner with established DeFi platforms like Compound or Aave to quickly gain access to DeFi markets without the substantial upfront investment required to build these capabilities in-house.
Conclusion
The rise of DeFi challenges traditional financial services organizations to rethink their Make vs. Buy decisions in the context of digital transformation and innovation. Strategic considerations must balance the desire for control and alignment with core competencies against the need for speed to market, regulatory compliance, and risk management. Operational excellence in either scenario requires significant investment in technology, processes, and people. As the DeFi landscape continues to evolve, staying informed and agile will be key to making decisions that ensure long-term competitive advantage and operational success in the new era of finance.
Best Practices in Make or Buy
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Make or Buy Case Studies
For a practical understanding of Make or Buy, take a look at these case studies.
Defense Procurement Strategy for Aerospace Components
Scenario: The organization is a major player in the aerospace defense sector, grappling with the decision to make or buy critical components.
Telecom Infrastructure Outsourcing Strategy
Scenario: The organization is a regional telecom operator facing increased pressure to modernize its infrastructure while managing costs.
Build vs. Buy Decision Framework for Semiconductor Manufacturer
Scenario: A semiconductor firm in the highly competitive technology sector is grappling with the strategic decision of building in-house capabilities versus buying or licensing from external sources.
Luxury Brand E-commerce Platform Decision
Scenario: A luxury fashion house is grappling with the decision to develop an in-house e-commerce platform or to leverage an existing third-party solution.
Make or Buy Decision Analysis for a Global Electronics Manufacturer
Scenario: A global electronics manufacturer is grappling with escalating operational costs and supply chain complexities.
Make or Buy Decision Analysis for Luxury Goods Manufacturer
Scenario: The organization in question is a high-end luxury goods manufacturer facing challenges in deciding whether to make components in-house or outsource to third-party vendors.
Explore all Flevy Management Case Studies
Related Questions
Here are our additional questions you may be interested in.
Operational Excellence, Management Consulting
This Q&A article was reviewed by Joseph Robinson. Joseph is the VP of Strategy at Flevy with expertise in Corporate Strategy and Operational Excellence. Prior to Flevy, Joseph worked at the Boston Consulting Group. He also has an MBA from MIT Sloan.
To cite this article, please use:
Source: "What implications does the rise of decentralized finance (DeFi) have on Make vs. Buy decisions in the financial services sector?," Flevy Management Insights, Joseph Robinson, 2025
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