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DeFi risks and the decentralisation illusion
41–50 of 140 posts
Re: DeFi risks and the decentralisation illusion
#42Earlier quoted context omitted.
All loans are overcollateralized, and basically used for leverage: put up your bitcoins as collateral, borrow stablecoins, buy more bitcoins. So the risk is limited as long as the loans can be liquidated in time in case of a price crash. The rates are determined the ratio of all stablecoin liquidity provided vs the amount actually borrowed. Liquidity providers can remove liquidity at any time, and so the smaller the…
> put up your bitcoins as collateral, borrow stablecoins, buy more bitcoins Nothing could possibly go wrong with this, right? Tether is found to not have the reserves they claim and it plunges, and the artificial demand for bitcoin disappears and it plunges as well.
DeFi loans are over-collatoralized usually by 1.5-2x.
If you want to borrow $100k, you put up $200k in collateral.
Re: DeFi risks and the decentralisation illusion
#43Earlier quoted context omitted.
You don't require a bank in the same sense that you don't require a baker. If you want to make your own bread, go head, nobody is stopping you. But in a modern society people engage in division of labour and specialisation, because this allows us to be orders of magnitude more productive and have things that we couldn't dream of making ourselves. People don't want to make their own bread, and they don't want to be th…
Maybe someone does want to create a very special and expensive type of bread and sell it worldwide. In order to accept payment, they must become a merchant with some centralized entity (Paypal, Mastercard, Visa). They must hope they live in the subset of countries where this is allowed. They must agree to a one-sided TOS that can be changed at any time. Then they must hope that all their buyers are honorable and trus…
>They must hope they live in the subset of countries where this is allowed.
Although the overlap between this subset, and the subset of countries with reliable international shipping, is pretty high.
Re: DeFi risks and the decentralisation illusion
#44It's real plank-in-your-own-eye stuff that all the crypto-huggers will dismiss the BLS analysis so readily at the line about banks acting as a risk buffer. Yes, to be sure! Banks present risks, massive risks, risks which should have been and still should be much better managed, at both bank and government levels — but boy howdy, are you in for a treat, you should see what happened to a financial system in the bad old…
Crypto: Capital buffers? What's that. We didn't see it in our due diligence list. Here is a summary of that list:
i mean yeah, that is one of the reasons why people are into crypto
Re: DeFi risks and the decentralisation illusion
#45Earlier quoted context omitted.
And it turns out the only people wanting to make novel financial instruments on crypto currency are scammers.
Most of the "novel" crypto financial instruments aren't necessarily "novel" so much as "made illegal in a century ago because of fraud and scams". Or at the very least "things with clear risks that crypto plebs are oblivious to" https://www.bloomberg.com/news/newsletters/2021-05-11/money-...
Care to show one or two financial instruments that were claimed to be "novel" but were made "illegal a century ago"?
Re: DeFi risks and the decentralisation illusion
#46The decentralisation illusion argument seems weak. One could have claimed the same about the early internet: Early internet wasn't truly decentralized as there were still ISPs, and you still need to register your domain with a centralized entity. This misses that the big change is one of access. Content creators were able to reach a large audience without playing ball with the big publishers or newspapers. With defi,…
network effects are real though. That's like saying that anyone can make a blog or anyone can make a facebook , but good luck with that. the problem is that , unlike bitcoin, VCs will control all the dominant network effects.
Re: DeFi risks and the decentralisation illusion
#47The decentralisation illusion argument seems weak. One could have claimed the same about the early internet: Early internet wasn't truly decentralized as there were still ISPs, and you still need to register your domain with a centralized entity. This misses that the big change is one of access. Content creators were able to reach a large audience without playing ball with the big publishers or newspapers. With defi,…
Instead of having to curry favor with bankers, you now have to do so with a clique of developers, lest they hard or soft fork your crypto out of existence.
“The development community is proposing a soft fork, (with NO ROLLBACK; no transactions or blocks will be “reversed”) which will make any transactions that make any calls/callcodes/delegatecalls that execute code with code hash (ie. The DAO and children) lead to the transaction (not just the call, the transaction) being invalid, preventing the Ether from being withdrawn by the attacker past the 27-day window. This will later be followed up by a hard fork which will give token holders the ability to recover their Ether.”
Vitalik Buterin in response to the DAO Vulnerability on June 17
Re: DeFi risks and the decentralisation illusion
#48It's real plank-in-your-own-eye stuff that all the crypto-huggers will dismiss the BLS analysis so readily at the line about banks acting as a risk buffer. Yes, to be sure! Banks present risks, massive risks, risks which should have been and still should be much better managed, at both bank and government levels — but boy howdy, are you in for a treat, you should see what happened to a financial system in the bad old…
>"you should see what happened to a financial system in the bad old days, when there were banks but no deposit insurance, and there would sometimes be a run on the banks, and they lose all their customers' cash, and the shock waves ripple through the whole economy."
It is my understanding that there was never a run on a solvent bank; runs were the consequences of bank failures, not the causes of them. It should also be pointed out that most bank failures were clearly caused by so-called 'unit banking', where the government prohibited banks from having multiple branches in diverse areas. Less-regulated banks (such as those in Canada and Scotland) suffered fewer failures, and had no issues with runs.
Re: DeFi risks and the decentralisation illusion
#49Earlier quoted context omitted.
Most of the "novel" crypto financial instruments aren't necessarily "novel" so much as "made illegal in a century ago because of fraud and scams". Or at the very least "things with clear risks that crypto plebs are oblivious to" https://www.bloomberg.com/news/newsletters/2021-05-11/money-...
Care to show one or two financial instruments that were claimed to be "novel" but were made "illegal a century ago"?
Re: DeFi risks and the decentralisation illusion
#50Earlier quoted context omitted.
You don't require a bank in the same sense that you don't require a baker. If you want to make your own bread, go head, nobody is stopping you. But in a modern society people engage in division of labour and specialisation, because this allows us to be orders of magnitude more productive and have things that we couldn't dream of making ourselves. People don't want to make their own bread, and they don't want to be th…
> People don't want to make their own bread, and they don't want to be their own bank either. But they aren't saying you have to be your own bank, by opening it all up, more and more people can be "banks" and that helps to decentralize finances from the handful of Big Banks. I'm not saying that random person down the road should be allowed to create a bank that others then trust with storing their assets, and I will…
I definitely agree that competition is very important, I don't think there are many doubts about that. I just don't see how DeFi can bring competition to the banking sector by allowing people to become banks. Ordinary people becoming a bank is not realistic competition to actual banks. People have jobs, they have work to do, they have to raise a family, they're not going to become competent bankers on top of that and outcompete professionals, even if they tried.