They need to convince us it’s not a Ponzi scheme so we will put money into it so they make money off our money. Then all we need to do is convince some more people it’s not a Ponzi scheme.
Why DeFi is not a Ponzi Scheme
21–27 of 27 posts
Re: Why DeFi is not a Ponzi Scheme
#22Earlier quoted context omitted.
To be fair, you do have to start with over-collateralized loans before you can get under/no collateral loans with plenty of projects trying to do the latter. That's how lending itself started ( https://www.provenir.com/resources/collateral/history-of-len... ). But I agree that if it's always overcollateralized then there is obviously much less utility created (though definitely some - similar to how you can get a loa…
> To be fair, you do have to start with over-collateralized loans before you can get under/no collateral loans with plenty of projects trying to do the latter. Yeah but also the collateral always has to be cryptocurrency right?
Yes for the most part it is. One reason being that it's just a lot easier to code and cleaner when everything is on-chain and tracked the same way.
But that's starting to change (https://centrifuge.io/) - still a long way to go ofc. I also know people who have done non-crypto collateral or just completely unsecured lending, but it does involve trust that is off-chain (legal contract, know the person, etc). I think that's a fine stepping stone (and may end up being necessary) as people figure out how to do everything on-chain and in decentralized ways (ex. using on-chain reputation)
Re: Why DeFi is not a Ponzi Scheme
#23Isn't security the biggest concern that's basically impossible to properly address in the current DeFi framework? You have a lot of money being governed by publicly available code with irreversible transactions. There have been a number of exploits in the past and there's no reason why they would stop. Why do people put their money in a system where everyone is a target and a bug can bring their entire balance to zer…
What about the current DeFi framework makes it impossible to address?
Imo smart contract engineering has much more in common with firmware, hardware, etc. than the mindset a typical React/web2 engineer might have (i.e. try things and iterate). I think that point is not talked about enough.
Re: Why DeFi is not a Ponzi Scheme
#24It's a Ponzi scheme built upon a Ponzi scheme. Ethereum (and whatever other chains support smart contracts) literally only exist as a platform upon which to build Ponzi schemes. Sorry but I can't do anything with DeFi. It's just juggling more crypto around. I've had multiple tell me I can get a loan on it but this is just False for any practical reason. I can't say get a loan for a car and use the car itself as colla…
To be fair, you do have to start with over-collateralized loans before you can get under/no collateral loans with plenty of projects trying to do the latter. That's how lending itself started ( https://www.provenir.com/resources/collateral/history-of-len... ). But I agree that if it's always overcollateralized then there is obviously much less utility created (though definitely some - similar to how you can get a loa…
About Goldfinch: Perhaps I've seen too many movies, but the "backers" look like the guys that will vouch for you to get the loan and break you knees in case you forgot to pay it back.
Re: Why DeFi is not a Ponzi Scheme
#25Isn't security the biggest concern that's basically impossible to properly address in the current DeFi framework? You have a lot of money being governed by publicly available code with irreversible transactions. There have been a number of exploits in the past and there's no reason why they would stop. Why do people put their money in a system where everyone is a target and a bug can bring their entire balance to zer…
I'm wondering if newer projects like Cardano are trying to address reversibility at all. To me this looks like the real roadblock for crypto. No financial institution wants to go broke because of a bug in the code. Granted, this can also happen in traditional finance, albeit with crypto it looks a lot easier to achieve.
I thought a big selling point for crypto was exactly this irreversibility. If we start building in crypto everything a fiat has, on one side we're reinventing the wheel and on the other neutralizing its (theoretical?) advantages.
Re: Why DeFi is not a Ponzi Scheme
#26A rosy definition of DeFi: DeFi (or “decentralized finance”) is an umbrella term for financial services on public blockchains, primarily Ethereum. . . . DeFi takes the basic premise of Bitcoin — digital money — and expands on it, creating an entire digital alternative to Wall Street, but without all the associated costs (think office towers, trading floors, banker salaries). This has the potential to create more open…
...and replaces those associated costs with gas costs.
Re: Why DeFi is not a Ponzi Scheme
#27Earlier quoted context omitted.
Maybe because it is fully programmable and transparent, executing the same rules for all participants, with no restrictions?
Just because it's transparent doesn't mean there aren't latent exploits, e.g. the DAO. Open source doesn't mean bug free, and having those bugs immutably etched into the blockchain where all your money is tied up is pretty terrifying!
I got that, but the question was why someone would risk that; I am pointing out that there is a strong positive that maybe outweighs the negatives for a number of users.