DeFi Underground?

24 May 2020 by rate3

We, who have been involved in DeFi space since its early inception at the end of 2018 (arguably), sometimes forget how niche is this market, even within our small community of crypto-hodlers.

Kendrick Lau - Senior Research Analyst from crypto.com - did a quality job by demonstrating that fact in his 22 pages report, which is, obviously, primarily aimed at his firms' newbie clients. Naturally, author can't be blamed for sugarcoating some apparent facts in this marketing piece.

Extract: "Decentralized Finance refers to financial services ... that are built on public blockchains and smart contracts, most commonly Ethereum."; 'the main benefit of DeFi is that financial services become trustless, censorship resistant, permissionless ...'; '... full political dcentralization is hard to achieve'; 'the most popular use of DeFi is for borrowing and lending'; 'DeFi main drawback is smart contract risk ... others are that is limited by blockchain throughput and that there could be regulatory oversight on the horizon ... (zic!)';

As we can see one of the most apparent risks - that of wild prices' and rates fluctuation, which can lead (as with Maker DAO in March 2020) to your stakes wiping out - is completely ignored in this review.

However, imho, it doesn't significantly undermine the value of this summary doc, which is still good to read if you know close to nothing about Finance 2.0 or want to have some brief overview of this space for your introductory presentation.

Among other useful things it provides readers with a basic DeFi categorization: stablecoins (Tether, MakerDAO), borrowing and lending (Maker, Compound, Aave), exchanges (IDEX, Uniswap, Bancor, Kyber Network), asset management (Set, Melonport), derivatives (Synthetix), non-custodial wallets (MetaMusk, Argent), others (Ox, Augur, Nexus/ Mutual), 'beyond Ethereum' (Lighting Network, Newdex - EOS-based decentralized exchange, Ren).

Although by no means it includes all of currently available protocols and misses such important category as 'in/out rumps' (f.e. Local Ethereum), still, it provides good starting point for beginners.

Another notable shortcomings of this report is that, although, author doesn't hide from readers the fact that "DeFi sounds awfully like a heaven for criminals ..." and "DeFi operates within a regulatory and legal gray area ... ", however, his conclusion that "... DeFi cold eventually become at least partially permissioned ..." can only raise your brows.

Obviously, according to author's own definition (see above) DeFi can't be "censorship resistant, permissionless" and requires KYC/AML at the same time :)

How shall we address that oxymoron when, indeed, we are faced by 'uniformed people with guns', is not an easy question at all (except, of course, if we do not launch 'DeFi Underground' movement or something of this rebellious sort) :)