DeFi is still fine, but we shouldn’t act as if it's a place where ordinary people should deposit all their savings. V. Buterin, creator of Ethereum.
The goal of DeFi, as I understand it, is to eliminate intermediaries and allow people to interact directly with each other. And typically, oversight of the financial system is structured to regulate intermediaries. H. Peirce, SEC Commissioner.
If the DeFi bubble pops temporarily, it will benefit BTC and ETH, as they will receive a large influx of capital. The hype may fade, but only in the short term, as the benefits and potential of DeFi are too evident to ignore. D. Hai, CEO of OKEx.
32% of cryptocurrency market participants admitted they do not understand the basics of decentralized finance. Data from a Blockfolio survey.
have saturated the market; DeFi is the new hype; DeFi are the new ICOs; DeFi is something else: that's what we hear from every outlet, monitor, and other devices, often ill-suited for this. Speaking for the 1001st time about what blockchain is, tokens, and how it can all be used is tiresome: the internet is full of materials on the subject. Moreover, this is not the level of Habr to teach the obvious. However, I want to compile the experiences of the past 1.5 years to give the reader a more or less objective picture, removing the excess from both the critic's and the fan's perspectives, while keeping only the important — the essence and my own vision. Therefore, there will be many links, numbers, and graphs.
What do we have? And most importantly — why?
Firstly, a huge number of unreviewed or, worse — reviewed retroactively (on- No.00 or on- No.01 and . to it) projects. Secondly, an inexplicable number of scams at the most primitive level (about this — below). Thirdly, the underutilization of 1-10% of project potential due to sheer greed, which focuses all attention on two or three schemes of "quick and easy" money.
Let me immediately present three disclaimers, so as not to discuss what has become (at least personally for me) tedious: in ICO scams, that gathered any amount and ultimately failed, are less in percentage terms than in the VC segment or banking loans (on- and ultimately failed, are less in percentage terms than in the VC segment or bank lending (on- №02). It is the successful ICO projects that have laid the technological foundation for today's DeFi hype: primarily Ethereum, followed by Tron, Bancor, Kyber Network, Brave (through BAT), and others. Secondly, cryptocurrencies and blockchain are indeed in demand around the world: Russia is rather an exception, as are Bangladesh or Turkmenistan, for example. Again, there are plenty of analytical reports on this matter. Third: what is happening now is largely nonexistent for 99.(9)%, although the number of users is growing: in Venezuela, India, Chile, Argentina, Ukraine, Russia, Belarus, even in the tabooed , and many other places, including Japan, Switzerland/Liechtenstein, African countries, and so on. All because there is much less illegal activity in cryptocurrency In an attempt to avoid loss fixation, some holders during the peak of the crypto winter took out loans secured by digital assets or deposited coins to earn a small, but passive income with minimal risk.
Thus, different approaches were gradually created, which are described in detail
, but briefly this sounds in models like: Fair launches, Programmatic decentralization, Growth marketing, Closer alignment, and alongside are ratioFactor, feeFactor, wrapFactor. I deliberately do not provide translations and explanations (the original author has some good allegories related to Uber), because the creators of DeFi products, especially those who promote them for mass adoption, use a lot of unfounded neologisms that often replicate old and not so good banking practices. And now — the facts:
Covid-19 forced banks to print more and more dollars… Yes, this has already been heard many times, but
until 2008-2009 Liberty Reserve ) and similar ones were ultimately tied to centralized agents. The situation is different now and the hedging function of BTC digital gold For the same reason, BTC,
wrapped in different forms Tokenization is increasing its influence every day: therein lies the main advantage of the function I call Middle-of-Exchange. Are you coming to the exchange and want to buy something? Then you need btc, eth, or, for the boldest, usdt: the latter tool gained momentum in 2020 and surpassed btc precisely in connection with the DeFi hype.
The same goes for the unprecedentedly large payments (let's remember the FATF and the madness of 115-FZ in Russia, which has been extensively discussed on Habr) with low fees: many discuss the high GAS fees in Ethereum but forget that the fee for security against hasn’t disappeared, just like the overall bandwidth fees. And despite all this — low fees, no excessive control measures, and the presence of deflationary models in several assets (btc is number one here, despite losing value to the same ) attract more and more users.
And so on...
In the sense that too many small details have accumulated: starting from on deposits, ending with statements about the taxation of everything and anything, including bank deposits. But the main point is not this: since 2008, or more precisely — since 2010, when lawsuits began from the '08 crisis, it became clear that offshore zones in their current form are no longer needed, or rather — they no longer serve their functions. The example of Cyprus (both in terms of the crisis of 2012-2013 and the situation of 'golden passports' removal) is far from the only one, and Belize, the Bahamas, the Isle of Man, and many others are forced to make concessions to FATF. In fact, for this reason, they, along with Estonia, Switzerland, and other zones that earn by attracting foreign money, realized and quickly understood: cryptocurrencies are the offshore of the 21st century! But it's easier said than done: the ICO hype occurred from mid-2017 to early 2018, with a full cycle from 2013 to 2018. Then there was a timid attempt at IEO, but the laws for all this appeared much later: and it doesn't matter whether we are talking about France, Thailand, or Liechtenstein (I'll remain silent about the USA, China, and Russia altogether). The absurdity of the situation is most evident in that in the USA, they started talking about crypto assets back in 2012 (and after the world congress — everywhere in 2014: what my article on Habr left behind the commissioners The SEC, senators, and other administrative dignitaries assert that clearer market regulation rules are needed. And yes: the ETF has not been launched either, I would remind you. Therefore, legislators from India, South Africa, Australia, and other jurisdictions increasingly remind one of a law blonde who clearly arrives at every party in the wrong outfit.
Or, to put it differently: DeFi is about flexibility, mobility, and speed as such. However, alongside this, there are also a number of negative qualities.
So what are the downsides?
Firstly, back in 2016-2018, scammers realized that the similarity of tickers was a path to "success," which is not much different from the banal combination of the “best” practices of spam and phishing. Thus, the popular exchange of fake tokens and outright theft coins. Other examples include: YFFI and YFII, which only thrived on their similarity to YFI. Moreover, all this kills airdrops at their root: the tool is— but it struggles under such usage.
Secondly, for the most part, the experience of (by the way, this was indeed a DeFi product) taught no one anything (right away— know about the holes, Thirdly, technical issues are the first layer of real problems. Much deeper difficulties lie in economic models, both for PoS families in general and for the DeFi segment in particular. Various specialists have pointed this out—even
the most unexpected ones, DAICO, , Fourth: instead of working on mistakes—unfair competitive struggle arises, where shortcomings become
tools in the hands of black PR, a banal increase. debts and other absurdities (especially — the priority race for collateral), which the DeFi market was supposedly created to address. First and foremost, this concerns liquidations , but not only that (again — see below). Rarely does anyone manage to exit quietly and relatively honestly: the example of Paradigm Labs is not the only one, but certainly not widespread.
Fifth: what is most disappointing is that stagnation is perceived as normal. For instance, what were ICO contributors doing? They were buying in closed rounds (presale and similar) at discounts of 10-25-50-75 percent and selling immediately after the listing on exchanges. What we see with ? А ровно то же самое. Или baDAPProve от ZenGo: «некоторые децентрализованные приложения (DApps) запрашивают одобрение для транзакции на определённую сумму, пользователь невольно даёт доступ к токену на всю имеющиеся средства», — когда реакции не последовало. В ряде случаев — до сих пор. Хотя инструменты для анализа/противостояния имеются: #1 and #2. Or how do you feel about the repeated experience of through such ‘services’ as: Pizza, HotDog, Kimchi, OnlyUp especially? If you’re unaware, these are Ponzi schemes, just accelerated by 1000 times, so that no one has a chance to rethink their actions.
In this regard — several striking examples.
The loudest failures and/or scams
— hack and $8,000,000 — resulting in a loss.
— hack for $371,000.
Asuka.Finance — exit scam: no comments.
— $20,000,000: I don't know, usually I want to check such figures, but not this time.
— $2,500,000: similar.
(SYFI) — compared to others here is ‘only’ from $150 to $0. Though it depends on what is being compared to what: — from $0.0009 to $5.28 and — going downhill.
— one of the ‘food’ tokens that failed, alongside HOTDOG and KIMCHI.
OnlyUP — see above.
— $600,000,000 without an audit and a collapse: ‘I’m sorry for everyone. I failed. Thank you for the crazy support today. I’m heartbroken.’ That’s all you can get with a careless attitude towards money.
— also about food and also $200,000,000 in liquidity: without an audit! Moreover, even when there is an audit — it doesn’t help, as no one reads it or skims through it: a prime example is , where the organizers forged audit results to misappropriate investor funds. But it must be understood that, according to Quantstamp, by July 2020 $2020 million was stolen. in MakerDAO from one hack (you can read the breakdown ) amounted to $8,000,000 in perpetually dead presidents, although compiled... a total of 28,000,000 in the same portraits, meaning the figures of frozen funds, funds withdrawn (stolen), etc. — different indicators, which does not negate their importance as a general overview.
— an unplanned token release.
— $15,000,000… Or even more , , Bantiample — and many others. I hope this is enough to maintain initial interest?
Armor and projectile
Although I do not endorse war, I consider the allegory of the confrontation between armor and projectile one of the best in human history. Therefore — there are indeed trends for development within the community as a whole:
It has been about four years since a unified monitoring system btc, which come and go from the dark web, are stolen, etc. (to- #3 or crystalblockchain upon their request). But this self-purification does not end here: an example () and especially the one I do not favor, SushiSwap — clear evidence that open and anonymous systems can exist with a non-subjective, but transactional reputation and the overall interaction of community participants.
Interaction at different levels: Paradigm and MakerDAO, the creation of tokenized Bitcoin, the enclave of Storj and Ethereum Classic, the assistance of white hats during hacks, or the funds from Huobi and Binance for the creation, support, and development of DeFi startups, funding KeeperDAO and Polychain Capital with Three Arrows Capital, the story of BnkToTheFuture itself (the same Celsius received 18.8 million there) or the token and even of lost funds in USDt, as well as much more — improves integration zones in various directions, although even here everything is happening incredibly slowly for such a turbulent market.. I would like to note separately that liquidity is also positioned as mutual assistance over the last 1.5 years: and for this reason, aggregators , starting from the little-known b2bx to the giants from 0x and others — a direct result of such synergy, no matter how it may sound to you.
At the same time, more and more developers (VIZ, MakerDAO, Ethereum Classic, YML, and others) strive to hand everything over to the community as quickly as possible so that are at the required level and not concentrated, which in itself is an oxymoron, This does not always succeed immediately: for example, — not the number we would like to strive for on a global scale, but the vector is set right.
It needs to be understood that after BNB (then you can take Token Terminal, Bankless, UNI) the native tokens of the platforms have effectively become — a tool for joint distribution (and later — governance/voting tokens), that is, the distributed legal entities mentioned back in 2017 — are now a reality, albeit in a quite primitive form.
Perhaps the most surprising (for an outside observer) case — is SushiSwap: first, the anonymous (!) owner pumps the asset from … to …, then — gets offended by everyone and funds, while refusing direct and then — receives a collective lawsuit (apparently, it's just a formality, considering the anonymity of the creator), and then… the funds! Moreover, he even receives praise from 75-90% of participants, despite the clear slowdown in project development. The most surprising thing is that everyone was about the possibility of such an attack, yet it didn’t concern anyone: do they still for a fair, impartial court?
Therefore, I am not a supporter of justifications, but the sphere is at least saturated with absurdity, simulacra, and other tools for the mind. However, I will also suggest tools for dissection:
Monitoring and analysis tools
In short, because the list can go on for a very long time. I took those who definitely don’t need advertising:
— overall market status, dynamics, and so on.
— nothing extra: dry numbers (which should not be trusted without further verification).
— alternative monitoring (though there are many such platforms based on different parameters: https://loanscan.io).
— how much btc is in… ether?
— if you haven’t heard about , then the time has definitely come: be extremely vigilant! (Alternative: ).
— not entirely about DeFi, but that resource allows (me) to view the market more broadly (if you like it too, I recommend checking out : one of the most important indicators for DEX).
I won’t provide chats, video reviews, and similar content: here, Google. Trends say it’s all fine. The main rule — never trust absolute numbers: after centralized exchanges in the crypto sphere inflated from 90 to 99 percent — it’s better to study everything in dynamics and relative indicators.
The best confirmation of what has been said is the following graph:
Why is this example so important? First, it's extremely difficult to find exact figures that match across different sources. Second, blocked funds are just one indicator, and even that can only be verified 100% through a comprehensive audit of the services, which, as mentioned earlier, often doesn't occur in many cases. Third, even assuming an unreasonable $15,000,000,000 in reserves, we're still looking at an initial development stage that appears overwhelming only because from 2017 to 2019, everyone was occupied with anything but DEX exchanges, liquidity, and the tokenization of crypto assets as such.
Therefore, here's another chart, but with averaged figures from various sources:
However, what saddens me the most (again, personally) is that 99.9% of projects are repetitions of various schemes from the fiat world: loans and credits (though formally in this sector, they are one and the same) account for . It's especially alarming that individuals entering the derivatives market can barely spell the word correctly in half of the cases. Still, I will try to generalize, stripping away the subjective component.
Market predictions, or thoughts out loud
"You can't embrace the ungraspable," Kozma Prutkov would say repeatedly, so here are a few theses that can be attempted to apply to the practical aspect, especially since the trends were evident in 2017-2019 and are now only becoming clear for those who do not closely follow the market:
Derivatives are bad, but they always are of visible growth: I am against repeating bad stories under a different guise. Synthetix (or Opyn, Aco, DYMMAX, Hegic, Opium, Pods) could very well be a remake of Bull & Bear Binance, and futures have already proven to be detrimental to the market, where there are always plenty of newcomers. Hence the strong inclination towards : that’s why stablecoins represent appearance rather than reality, yet their impact is , but in a psychological sense, rather than strictly financial (economic). All this combined (the focus on liquidity rather than product projections (token); love for visible calm (stablecoins); attacks due to poorly thought-out models (vampire mining and the like)) creates an inverse pyramid effect: for instance, the market capitalization of tokens can easily exceed the same indicator of the progenitor, but without it they are absolutely meaningless; and this is relevant also because everything compounds with trading with and even more.
In this sense, the volatile mix of “CeFi + DeFi” (), especially in the era of . (the BSC example is again illustrative), which should be multiplied by various attacks on the (D/L)PoS family create a whole chain of negative dependencies. The same vampiric of liquidity in itself is a bug, but when this is compounded by governance system issues (again, reminding about : if you still don’t understand why, then ), and then everything multiplies through exchange rate bindings (consider Ampleforth, Soft Yearn (SYFI), Bull/Bear Binance), it turns into not just confusion, but deliberate manipulations, one of which is that STO will never become ICO, while , to always seem neglected, while earning quite well themselves (another example: the confrontation between Steem (Hive), Steemit & Tron communities or BTC-e in full view long before the described events).
Be that as it may, DeFi in the sense that is close to me, that is, as a complete set of decentralized financial tools, from the simplest btc to complex reputation collateral schemes, must evolve. Therefore, it is important that becomes the norm. Only in this case will the link DEX + DAO through various Dapps (from Web 3.0 browsers and wallets to closed ecosystems) create truly interesting, innovative, and most importantly — promising models. For now, I only observe a game on and with greed, as well as a departure from the main criterion of freedom — .
Knowing the experience of ICOs very well, I would like to note this: "approximately 49% of leading startups in the decentralized finance (DeFi) sector are located in the USA. This data was published by analysts . Of the 73 firms tracked by experts, 12% are based in the UK, and another 10% are in Singapore.” So decentralized finance is still decentralized only in words: in practice — it remains ordinary companies/firm, although DAO is a great tool for automation and is certainly better suited for distributing dividends than JSC or some LLC. But , and then — regulators in other jurisdictions: why the 'market participants' forgot about this, I do not know.
But why does this happen?
It's simple: 'DeFi ecosystem projects operate : prediction markets; decentralized autonomous organizations (DAOs); ; asset management; derivatives; insurance; exchanges and liquidity providers; stablecoins; banking and payments; infrastructure; marketplaces; bitcoin tokenization.' No mention of tokenization per se, nor anything you'd find in traditional finance. Nothing. And here are the TOP categories:
Hence the absurdity: while the adjusted total value locked (Adjusted TVL) or non-fungible tokens (NFTs) may seem attractive (see the experience of WAX or Dapper Labs through Dr. Seuss), all this does not change the main thing — the paradigm of thought. Speculations don't contribute anything to the market; I repeat for the fourth time in four years.
In conclusion
My impression of DeFi in its current form is this: you came to a concert to listen to your favorite music, but they played something completely different: instead of Rachmaninoff's technique and the orchestra's cohesive performance — it's an amateurish jazz by local musicians, which they somehow consider innovative, even though all similar compositions were written back in the 1940s, in a smoky room with awful leftovers that for some reason are called food here, and you have to pay three times for everything! Perhaps a different venue or musicians would help, or maybe it's just not the right mood? Probably, that's why I tried to be objective and present not only what is clearly malicious but also what can be worth exploring at least.
In any case, what was said : if for you, as for me, p2p is about fairness (distribution), equality (starting conditions), and cooperation (through evolution), then the existing DeFi model clearly contradicts both what is stated in Bitcoin's genesis block and what Assange wrote about and those who did enough for the development of cryptocurrencies and blockchain to be heard. However, everyone is free to think that DeFi is , and thus is already breaking stereotypes, the system, etc.: after all, in the end, what reason do I have to be dissatisfied? The DEX segment, as expected, centralized counterparts; the number of cryptocurrency users and DeFi resources is growing (though for now, it concerns only tens of thousands in the latter case, which is akin to a small town); accelerates towards version 2.0 and so on, so forth. But it’s just like the joke about the spoons, where they were found, yet the sediment remained: can we even discuss this topic? Yes, but then the network will be filled with endless praises and a never-ending stream of complaints afterward: forewarned is forearmed, even if only intellectually. This is precisely the goal: to move from hype to numbers, facts, and forecasts based on them, not just rambling about Bitcoin at $100,000 or the futility of it all (a line for those reading from the end).
What’s next?
The very , which is worth reading if you want to understand a bit more: I believe English is no longer a barrier, at least Deepl will definitely do its job.
As always, Twitter for the crypto industry is a treasure trove of knowledge: here's , but there are significantly more sources above, and a simple hashtag search will yield more than complex analytics in Russian search engines.
But it's better to : for some reason, many have overlooked them, yet they are full of important and interesting information.
So for now — goodbye!
P.S.
I didn’t cover the oracle risks, sophisticated attacks, and much more, including non-trivial approaches to open data analytics, so if there is interest from the Habr community, I would be happy to continue: especially since the crisis from 2018-2022 is not yet over, which means fraudsters will be extracting funds, developers will be looking for projects, entrepreneurs will be inventing them: although the latter are currently not linked to the former, and it is still the former who reign supreme…
For everyone who thinks the article should focus on answering the question of what DeFi is — see the first paragraph after the quotes.
UPD. If I had known… it was released right after the publication of my article, but : a sort of response from banks towards DeFi.
Source: habr.com
