Opinion: João Garcia, DevReal Leader at Cartesi.

Decentralized finance appears as a clear alternative to Wall Street. However, a simplified version of finance has largely been reconstructed, based less on market resilience than on gas rate constraints. Once treated as a technical footnote, this trade-off is increasingly shaping the boundaries of what DeFi can become.

As long as computational minimalism remains a top priority, financial stability will remain secondary, and periods of market stress will continue to highlight these imbalances.

When the markets move faster than the virtual machine

DeFi has rebuilt the familiar architecture of finance, including exchanges, lending markets, derivatives and stablecoins. However, the way these systems work shows how closely coupled they are to their runtime environments.

Risk parameters typically remain stationary, and while security thresholds can be adjusted, this usually happens slowly through management processes rather than automatic recalibration. Liquidation mechanisms currently rely on fixed formulas rather than adaptive portfolio models that take into account variable volatility or correlations. What appears to be a design preference is often a concession to computational constraints.

On Ethereum and similar networks, floating-point arithmetic is absent or emulated, iterative simulations are pricey, and constantly recalculating exposures between assets can quickly become impractical. As a result, financial logic becomes compressed into forms that are deterministic and tractable, even if this compression removes nuance.

This architecture performs adequately under stable conditions, but variability has a way of testing its edges. During MakerDAO’s “Black Thursday” event in March 2020, vaults were liquidated with effectively zero bids as auction mechanics struggled with falling prices and network congestion.

In later downturns, protocols such as Aave and Compound relied on mass liquidations triggered by fixed collateralization ratios rather than vigorous portfolio recalculations. When Curve pools were destabilized through sharp contract employ in 2023, the tension spread to lending protocols that treated LP tokens as stationary collateral, increasing systemic risk.

In each case, decentralization itself was not the critical point. A rather unyielding financial logic operated at the executive level, which could not continuously recalculate risk as conditions deteriorated.

Traditional markets have evolved in the opposite direction. Banks and clearinghouses simulate thousands of stress scenarios, recalculating exposure as correlations change and volatility regimes change. Margin requirements dynamically respond to market conditions and are responded to by significant computing infrastructure and mature numerical tools. Public blockchains, on the other hand, were not designed with this degree of iterative financial processing in mind.

The illusion of simplicity

Reducing computational complexity reduces certain attack surfaces. However, simplicity at the protocol layer does not eliminate the complexity of the financial system. It just pushes it somewhere else.

When risk cannot be modeled and recalculated transparently on-chain, it migrates off-chain into dashboards, analytics teams, discretionary parameter adjustments, and emergency management coordination. Blockchain may remain the settlement layer, but the adaptive intelligence that stabilizes the system increasingly operates outside of it. During spikes in volatility, protocols often depend on rapid human coordination to adjust parameters, while oracles and gigantic token holders gain disproportionate influence on outcomes.

The system retains its decentralized foundation, but its ability to respond flexibly depends on actors operating outside the deterministic implementation. What appears structurally basic at the sharp contract level may hide a more elaborate and less clear operational reality.

DeFi has not opted for simplified finance because stationary indicators and deterministic curves have been proven to be better. This is where convergence was achieved because richer computational models were too pricey to maintain. As markets deepen, leverage increases, and instruments become more interdependent, this trade-off becomes increasingly complex to ignore. Fixed thresholds and blunt liquidation mechanisms, initially protective, may begin to act as stress amplifiers.

Calculation as a missing primitive

A deeper constraint, greater than decentralization, is execution design.

If verifiable runtimes begin to resemble general-purpose computing systems, the financial design space will expand. Native floating-point support, iterative algorithms, and access to established numerical libraries would enable models to be expressed directly rather than translated into simplified approximations.

Related: Wall Street will eventually toe the line of DeFi

This change would enable scenario-based stress testing to be incorporated into lending protocols, rather than relying primarily on fixed collateral ratios. Margin requirements may also adjust in response to observed volatility rather than management cadence. It could also be the case that credit systems transparently recalculate multidimensional risk assessments, replacing binary heuristics with more detailed assessments.

The goal is not to introduce complexity per se. This is intended to keep financial intelligence within the protocol, where it remains observable and enforceable, rather than moving it externally into operational layers that cannot be easily audited by users. This underscores the broader view that the limitations facing DeFi are largely architectural choices rather than the inevitability of decentralization.

Credibility ceiling

DeFi is currently at a structural crossroads. One direction maintains gas-optimized minimalism, maintaining the immaculate execution of the base layer while allowing increasingly sophisticated financial logic to migrate off-chain. This path can provide transparency at the sharp contract level, but limits the extent to which decentralized finance can be scaled responsibly.

The alternative is to treat computation itself as a first-class primitive and accept more capable execution environments in exchange for systems that can transparently adapt, compute, and stress test. If elaborate risk logic cannot run on-chain, DeFi will continue to design for code simplicity, relying on discretion in practice.

Markets will not relax their complexity to accommodate the constraints of virtual machines. If decentralized finance is going to operate at significant scale, its computational foundations will need to evolve along with the financial ambitions built on them.

Opinion: João Garcia, DevReal Leader at Cartesi.