DeFi risks and the decentralisation illusion

Sorry I don't get it. Why would you lock up 200k in order to borrow 100k? Why not just use part of the 200k you already have?!

Their entire point about defi not being decentralized is almost entirely false.

Uniswap the company is entirely disconnected from the uniswap router which is what defi really is. The uniswap router is what completes transactions on the blockchain. Not the uniswap website. The uniswap website simply provides a front end for interacting with the uniswap protocol.

You can easily, like less than 100 lines of code, write your own implementation of the uniswap swap functionality. This is why it truly is decentralized. Uniswap the company has no way of preventing you from doing that in their v1, v2, or v3 router.

Further they themselves are not running the router. Anyone who is running an eth node, or miner is running the router. So yes, uniswap has a financial interest in making a commercially successful product. But that product is uniswap.org/app

It is not the smart contract. The smart contract is what makes it decentralized.

Their only argument besides the financial interests of the companies who created the first defi products is claiming that blockchain rewards lead to concentration. Which is the same argument that has been made since bitcoin was first launched, but every single day the likelyhood of any sort of attack related to concentration becomes less likely. As more people start their own mining operations and start hosting their own node.

If someone wanted to centralize the chain they missed their opportunity. Because it is simply not feasible for it to occur at this point.

Like usual, old school economists desire to control crypto markets. But they know they aren't able to and won't ever be able to so they write ill informed articles filled with factually incorrect claims in order to misled policy makers to implement laws to attempt to regulate the industry. Which will also fail.

> [...] crypto-huggers will dismiss the BLS analysis so readily at the line about banks acting as a risk buffer. [...]

For the past decade we've found out -- annually -- that internationally regulated financial provider X/Y/Z is banking narco terrorists, or sheltering funds for politicians, or being the final off-ramp for ransomware.

> Now let's do the exact same thing in the crypto-verse, except with even dodgier loans [...]

Guess it depends on your definition of "dodgier". I grew up with unregulated pay-day-loans being in every strip mall in Ohio.

> [...] rampant fraud and bank robberies.

The IC3 report https://www.ic3.gov/Media/PDF/AnnualReport/2020_IC3ElderFrau...> on state-side fraud implies the per-capita rate of Americans scammed in 'normal banking' far exceeds the rate of Americans scammed by crypto.

I'm going to preface this with I have no idea how any of this ACTUALLY works, and I'm probably wrong, but the "blockchain" abstracts all the more complicated bits away. I'm not a crypto diehard, and probably never will be. I think they are neat, and I have about 10% of my net worth tied up in a handful of coins. Here is my understanding how we can all be banks without even really thinking about it.

Some coins (PoS specifically) allow staking, which allows you to set it aside a certain amount, which is then used to validate other transactions, and you earn rewards. In traditional banking, this is kind of like a CD, and your money is used to help the bank out and it pays you interest on that.

The Ethernet (and a few other coins Solana comes to mind) ledger allow for the creation of smart contracts (applications that run on the blockchain) that could (probably some already exist) allow you to automate the creation loans on the ledger, witnessed by the world, that automatically pay you back. You can probably use the smart contract to do a modicum of due diligence on the borrower. But instead of paying SynapseFi (or other but first name that came to mine) thousands a month to allow you to build out loans, its all there for you on the block chain. This probably IS the future of peer2peer lending, as it is already a HUGE industry, and this would kind of get rid of the middle man.

One aspect of banking that is not really needed anymore would be the storage of assets. That is a built in part of cryptocurrency.

There is still the question of how do you get crypto, and for now, and until more people use it for everyday actives, that requires exchanges. And Exchanges could be seen as a centralization of sorts, but even they are a dime a dozen so they are effectively decentralized. And most support transferring to a wallet. So... kinda decentralized.

I have been saying this for a while: DeFi depends on CeFi (Centralized Finance). Coinbase depends on people connecting their bank accounts or credit cards to fund their accounts. Coinbase's value was created through an IPO on the NYSE - the mecca of centralized finance...