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Source: Donovan Choy
Original title: Bankless: FTX's failure is the reason why we need more DeFi
"FTX's failure declares the failure of DeFi."
Over the past week, in the shocking implosion of FTX and Alameda, this statement has been approved by various Web3 skeptics.
White House reiterates that FTX is the reason why "there is indeed a need for prudent regulation of cryptocurrencies." In a tweet, Senator Elizabeth Warren characterized the cryptocurrency industry as "smoke and mirrors", believing that SEC should be promoted for "more aggressive enforcement."
This is not just a matter for politicians. Anti-DeFi Bitcoinists are seizing the opportunity of the FTX explosion and promoting their slogan "Why is only Bitcoin useful?" The disaster that
FTX is not DeFi
FTX represents the failure of a centralized financial mechanism, and DeFi has been working hard to replace this mechanism.
Consider where the root cause of the FTX disaster ultimately comes from - FTX lends out the customer's deposits instead of holding them as redeemable deposits 1:1.
What’s worse is that they over-leverage their balance sheet by holding disproportionately large numbers of poorly liquid FTT tokens as collateral rather than safer assets like stablecoins.
In short, FTX is trying to play the role of a bank where it shouldn't be, and it plays awful.
For DeFi exchanges or banks, both of the above situations are impossible.
DeFi is a self-regulated
. Check out DeFi’s largest trading platform: Uniswap.
Uniswap users will never suffer from insomnia because of "whether Uniswap will trade customers' deposits". The reason is simple, because there was no personal "deposit" at the beginning. is different from FTX, where users simply execute transactions in hundreds of unauthorized liquidity pools .
The funds in these pools are provided by liquidity providers/stakeholders, and they also don't worry that Uniswap will trade their deposits. These liquidity pools are managed by immutable smart contracts, making it impossible for Uniswap to do anything else with their funds.
DeFi platforms for any loan/borrow, such as Aave or Compound, are the same as . If you are taking a loan on Aave, you first need to deposit capital at a secure loan-to-value ratio. If the value of the collateral you support your loan is below the preset threshold, Aave will automatically liquidate your loan. This is in contrast to a series of bad loans offered by FTX to its sister hedge fund Alameda, which were subsequently used as loan collateral elsewhere.
's most competitive, market-tested DeFi protocol follows these self-management rules, aiming to avoid what is happening on FTX as it is currently on.
and CeFi, before FTX crashed, Alameda Research held an outstanding loan of 20 million MIM (Abracadabra's stablecoin), while FTX's exchange token FTT was 5 million. But whatever your opinion about Alameda (or Dani Sesta), the debt was fully paid off on November 9 in amid market turmoil.
Why do they return it?
Alameda is not a loan repayment out of good faith. They pay loans because there is no bankruptcy protection filing option in the world of EVM. If Alameda defaults, their FTT collateral will be liquidated immediately and sold by the liquidator for the then $17 price.
paying off the loan and regaining the FTT is in their best interest.
In short, it was DeFi that forced them to pay off their loan .
DeFi What about the stablecoin part of the world?
's criterion for testing stablecoins is whether it is pegged to the US dollar, which can be stressful when markets fluctuate.
However, Maker's DAI performed well in the last week's test. The same goes for
and even MIM, although it has 35% FTT staking, the results are also great.MIM regained its peg after
briefly depreciated to $0.974 on November 9.
DeFi failed on the social level
So when cryptocurrency skeptics blame DeFi for the crime of "failure", people in the field should of course refute them.
DeFi transactions and lending agreements work as expected?
Yes, they did it. Have
decentralized stablecoins depreciated and collapsed?
doesn't, they don't.
Ultimately, skeptics don't seem to understand this. However, in a sense, DeFi failed.
- DeFi failed because its community became complacent. We should have made a proof of reserve a long time ago.
- DeFi failed because we did not foresee the intention of SBF, and we should have been more suspicious.
- DeFi failed because we accepted centralized intermediary institutions for convenience. Self-hosting is difficult, but trust in FTX has exposed too many people in the industry to risks.
failure is not in the DeFi system itself, but in the cryptocurrency community, which compromises too much and too much .
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