Decentralization Began DeFi. Next Phase: Onchain Finance

Andre Cronje, founder and CEO of Flying Tulip, wrote in a guest opinion that decentralization gave rise to DeFi but that many modern protocols operate with the responsibilities of financial companies and should be called “onchain finance.” He said language and trust assumptions need to match where operational responsibility and counterparty risk now sit.

Cronje traced the change to user expectations and greater product complexity. He described early projects such as Yearn Finance as intended to run entirely onchain with minimal founder control. He said current users expect identifiable teams to maintain front ends, offer customer support, manage risk, and run offchain services like keepers and liquidation bots.

Those offchain functions carry operating costs and require staff paid and retained over multi-year horizons, Cronje wrote. He said those commitments are not captured by smart contracts alone and that many protocols have begun to resemble operating companies that charge fees and run ongoing services.

On contract design, Cronje recommended upgradeability for complex financial systems when governance and security are built around that choice. He described immutability as a deliberate design option that remains appropriate for simple, bounded contracts but can be a constraint for systems that must adapt to markets, integrations and threats. He added that upgradeability increases the attack surface and urged stronger controls beyond a conventional smart-contract audit, writing, “An audit is not a security strategy.” He listed infrastructure security, key management, circuit breakers and real-time outflow monitoring as additional layers.

Cronje outlined operational controls Flying Tulip uses. Withdrawal requests enter a queue and become claimable six hours later. Anything able to move money sits behind timelocks and multisigs, while emergency pause functions are separate so an emergency control is not delayed by a long timelock. He characterized circuit breakers as a feature and said repeated large losses across the industry reinforce that approach.

He described changes to counterparty exposure in modern products. Curated vaults and other structures can create effective counterparties beyond the smart contract, including curators, offchain credit facilities, tokenized real-world assets or IOUs. Cronje wrote that users should understand which parties back a product and how trust is allocated.

On tokens, he noted market participants increasingly treat tokens as economic exposure rather than only utility. He said tokens that trade publicly face similar expectations as public securities for disclosure, governance and reporting if market participants evaluate them as economic claims.

Cronje provided details of Flying Tulip’s designs to illustrate operational differences. Margin accounts at the firm are equity-based rather than loan-to-value (LTV) based; the system assesses an account’s actual equity, including realized and unrealized profits and losses and offsetting positions. For the protocol’s ftUSD stablecoin, USDC and USDT act as collateral. The system borrows ETH against that collateral, swaps the borrowed ETH into staked ETH and posts the staked ETH as additional collateral so the ETH and staked ETH legs offset one another. He said the design has a modeled capacity of roughly eight turns of leverage but the protocol is operating around 1.5x while liquidity develops.

Cronje described a request-for-quote (RFQ) liquidation process that solicits bids and fills the best offer rather than allowing fixed-term liquidations. He reported that during recent market stress most liquidations were repaid dollar for dollar without haircuts to users.

He closed by urging the industry to adopt the term “onchain finance” and by saying institutional capital will assess systems by risk-adjusted returns, transparent risk management and cost efficiency rather than labels.