Is Decentralized Finance Imploding?
"You can't issue unlicensed securities and use your friends as the underwriters," I told someone who's much smarter than me a few months back.
We were debating decentralized finance (DeFi), and the extent to which quite a lot of it seemed flagrantly fraudulent to me.
Conversations like ours take place all the time. Almost invariably, the interlocutors are an intellectual mismatch. I'm not the smartest person in the world. I'm quite arrogant, but I've never pretended to be especially brilliant.
Levine has a way of phrasing very complex situations. I read that article and having read your articles on crypto, I feel that what I said in the beginning is true now.
Pyramid scheme dressed in the Emperor‘s new clothes
“[People keep] trying to contort it into something useful, and it never gets there.”
That seems like a pretty good summary of the crypto world. Unless the Ponzi scheme itself is the purpose?
The reason there are so many of these tokens is that the people who introduce them are the only ones who get rich because they get a nice share of the outstanding units for free, presumably as compensation for their brilliance and “vision.” Why do others fund this no-account wealth? Presumably it is because though the buyers of these tokens suspect they are probably suckers, their greed encourages them to think their their share of the “pie” will make them rich enough. My benighted in-laws some years ago fell for a real Ponzi scheme, from which I extricated them before the loss became too large. I even had a friend and golfing buddy who was running the same kind of scheme and bilking many folks out of millions. One of his victims actually took umbrage and presumably killed the guy in the woods behind his house. Cops said it was suicide but the gun was found nearly a mile from the body so that idea really didn’t fly. Now a very cold case.
Your pieces may inspire me to finally write my own blog post on the matter.
The technology is immature, my analogy: imagine if everyone in web1.0 tried to do credit card transactions without HTTPS encryption, and the webservers that received a credit card just saved the info so someone could print it and send a fax. That would and did fail (loss of money, no traction). Then HTTPS and paypal.
Bitcoin with a distributed mechanism to validate a store of value is a real innovation, like banks adopting computers and the inevitable digitization of dollars – except you don’t need banks.
Unfortunately there’s still things to work out like the speed to validate (based on current compute and network speeds), and the huge overall problem with identity and trust: if my wallet interacts with someone are they who they say they are?
Ethereum and then others are attempting to innovate with “smart contracts” and proof rather than raw compute, but because the domain is a “store of value” aka money it’s just too damned easy to use technobabble and create a ponzi scheme (VCs and startups have danced this way for decades).
So we’ll get a (short) crypto winter until someone pulls together the tech in a mature and compelling way.
I’ve heard NFTs in a more mature form could be a building block for Identity (because scarcity is what makes me uniquely me)…
I understand why a secure protocol is a prerequisite for financial transactions. I understood the need for it before such protocols came into being. I don’t get the “except you don’t need banks” in DeFi as the major innovation, as if we were suffering through with banks. My bank is annoying from time to time, but I largely trust it. It has been around for some 200 years. My deposit is protected by FDIC. I don’t need to be technically savvy to use the services. In a pinch, I can walk to my nearest branch. DeFi is complex. Even your explanation is complex. “Smart contracts”, “raw compute”, “proof” — what are you on about? Actually, I do know what they mean, but I can’t imagine most of the world getting this stuff. And guess what – even the guys who supposedly get it, lose their money in some scam or the other.
This site documents web3 fraud and mishaps. It’s a great read.
https://web3isgoinggreat.com/
I witnessed ETH go from $1800 to $80 in 2018, may be DeFi is death, may be it is just a pause, we’ll see, coins dropping in value dramatically is nothing new in crypto, not sure that translates into the space imploding, will retail companies implode because Target lost 25% in a day? That to me is more surprising and scary than Avax at $22 or Solana at $42.
There is no “space.” There’s nothing there. Outside of Bitcoin, there’s no reason for this stuff to exist. I can confidently say that now. Assuming we need one form of outside money that isn’t gold, we have it. It’s Bitcoin. Why do we need two? Or 10,000? So we can build apps on top of a blockchain? Are there not enough apps? And who are all these people who want to send $50,000 in legitimate money over a trustless network with no one to call and no one to blame if something goes wrong? Have you ever moved a few thousand from MetaMask to a centralized exchange? I have. It’s not fun. It’s like waiting for the results of a cancer screening. You just have to sit there and hope. If I move $25,000 from Chase to BofA, I don’t have to worry. It’s gonna be fine. If something happens in the process, there’s no chance (none) that I’ll end up losing my money as long as I haven’t done anything illegal. Anything and everything can happen on-chain. This idea that it’s somehow more trustworthy “because blockchain” is nonsense. You can (literally) lose $1,000 on-chain just trying to do a few things. No phishing, no scams, just a grand lost to gas fees for failed transactions, cancelation requests and who only knows what else. It’s totally insane and if regulators ever vault into the 21st century and start to understand it, they’ll ban it.
Hasn’t the original/classic LUNA been renamed LUNAC? Rather appropriately it seems
Huntly- you got there before me with Luna-c!
There’s a sucker born every minute….
We need James Randi to come back to life and help us….
I can let you in but I can’t let you out….