cloud computing services and blockchain

The article aims to provide insight into how cloud service providers can impact the institutional decentralized finance (DeFi) landscape by building blockchain tools, establishing Web3 collaborations, and providing the resources for developing. If you are unfamiliar with DeFi, check out our introductory articles on crypto, DeFi, and blockchain. You can also read the transcript of our panel discussion about the institutionalization of blockchain technology here!

Introduction to Cloud Service Providers

Cloud service providers offer cloud computing services for their retail and institutional customers. They own data centers with the necessary hardware and software infrastructure for data storage and running of applications, allowing them to provide a suite of services such as platform as a service (PaaS), infrastructure as a service (IaaS), and software as a service (SaaS). 

Traditionally, companies rely on on-site hardware and infrastructure to run their own servers, store data, and manage applications. This is much more costly because the hardware takes up physical space and requires maintenance, implying higher operational costs with the manpower and space needed. The COVID-19 pandemic brought about an increased need for remote data access for companies worldwide, catalyzing the growth in cloud usage. The cloud infrastructure industry reached a 12-month revenue of US$217B (as of Q3 2022). 

cloud service providers market share distribution

A Catalyst for Institutional DeFi Adoption?

Apart from the boost in growth that came with the pandemic, cloud computing giants such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud have also been ramping up their collaborations with blockchain and Web3-native platforms while building blockchain-focused products. 

As the entire DeFi ecosystem strives towards mass adoption, institutional DeFi adoption could drive this change in the financial markets. The key to bridging this Web2 to Web3 gap would be providing support for developers who are building infrastructure that accommodates the needs of institutions, thus encouraging the use of Web3 services.

Adapting to the Times, Adopting Blockchain Technology

cloud service providers' participation in the blockchain space

Just in the last two years, the three largest cloud service providers have taken notable steps to advance in the blockchain space in various ways, such as through collaborations with Web3-native projects. Many of these partnerships allow cloud service providers to give technical and infrastructural support to Web3 platforms, enabling greater scalability and efficiency. For instance, Microsoft Azure’s and AWS’ recent partnerships with Ankr and Ava Labs, respectively, benefit developers in the deployment of nodes. The focus on enabling builders to push the boundaries of DeFi and blockchain adoption through infrastructural development can also be seen with Google Cloud’s support for startups on NEAR Protocol and BNB Chain

What Does This Mean for Institutional DeFi Adoption?

Many institutions continue to be apprehensive about adopting DeFi, choosing to first observe the space from a distance. There remain many blockers for institutions looking to participate in DeFi as part of their investments, such as scalability, data privacy, data analytics, and regulations. This is despite the efficiencies that DeFi brings, such as automation through smart contracts, interoperability, and composability, which allows for aggregation of liquidity and more capital-efficient investing.

In order to bridge this gap from traditional finance (TradFi) to DeFi, private finance (PriFi) solutions have emerged as halfway stepping stones that initiate institutions into the space. PriFi projects address institutions’ concerns about the lack of know-your-customer (KYC) and anti-money laundering (AML) processes with whitelisted and permissioned pools and chains. Building on this, since cloud service providers are trusted organizations by institutions, their involvement in the blockchain infrastructural space could fill the gap of “trust” in an otherwise “trustless” environment, encouraging institutions to adopt DeFi. On an infrastructural level, cloud service providers can also provide the resources for DeFi applications to harness enterprise-grade scalability capabilities, as well as additional levels of security and data encryption. Some examples of collaborations between Web3 entities and the major cloud service providers to boost infrastructural development include AWS Chainlink Quickstart, Amazon Managed Blockchain, and ConsenSys Quorum Blockchain Service which is closely related to Microsoft Azure.

Partnerships with Web2 cloud service providers also open up a new pool of potential customers for Web3 applications and projects. With Google Cloud becoming a validator on Tezos, Google Cloud customers can deploy and host Tezos remote procedure call (RPC) nodes when building Web3 applications on the blockchain. Another example is Kadena’s launch on Microsoft Azure Marketplace and AWS Marketplace, which helps to introduce its scalable permissioned blockchain to a wider pool of institutional clients. 

Will There Be an “AWS of Web3”?

On 8 December 2021, AWS experienced an outage and this led to the halting of services by centralized exchanges such as Binance.US and Coinbase, as well as decentralized exchange, dYdX. This raised concerns about the decentralization of the latter, as well as DeFi’s dependence on centralized entities such as cloud service providers. With this risk of single points of failure, decentralized cloud computing and storage projects have emerged over the past few years, each seeking to be the “AWS of Web3”. Some notable projects tackling this problem include Filecoin, Storj, and Akash Network. There is certainly a lot of potential in the decentralized cloud computing space, but it is still nascent and might require a lot more development before it can compete vis-à-vis with Web2 powerhouses. Just as CeDeFi acts as the intermediary between Centralized Finance (CeFi) and DeFi, perhaps new hybrid technologies will emerge as intermediaries to catalyze adoption between centralized and decentralized cloud services. 

Conclusion

Institutional capital could advance the DeFi space, and building infrastructure that suits the needs of institutions could be the key to unlocking this potential. With the help and support of Web3-friendly Web2 infrastructural giants such as major cloud service providers, both Web2 and Web3 developers can work towards building this bridge between the old and new web—the intersection between cloud computing and Web3. We already see more and more enterprises adopting blockchain technology to optimize their processes. Although there is still a leap from blockchain adoption to the more-niche DeFi adoption, we believe that collaborations between cloud service providers and Web3 projects have the potential to bring about new functions in terms of bridging technologies to build institutional-grade services. 

Disclaimer

This publication is provided for informational and entertainment purposes only. Nothing contained in this publication constitutes financial advice, trading advice, or any other advice, nor does it constitute an offer to buy or sell securities or any other assets or participate in any particular trading strategy. This publication does not take into account your personal investment objectives, financial situation, or needs. Treehouse does not warrant that the information provided in this publication is up-to-date or accurate.


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