To me this is like complaining about webvan in the 90s and missing the forest through the trees.
DAOs, and AMMs are interesting - there's a lot of potential in leveraging DeFi to make systems that can work in ways better than existing legacy tech, it's just hard and people don't have it already figured out to the point where looking at it makes it obvious. General public state is a new thing and how it can be used is being figured out (oracles, programmable money, etc.).
When something is new it looks more 'pointless' and toy-like. It takes a while for its value to become truly obvious to everyone (and it requires some people to see that value early).
The problem is you’re looking at a technological dead end (Bitcoin). There’s no innovation there, financial or otherwise, just momentum. However all you have to do is to turn your eye adjacent to the dapp space and see where developer and user adoption is definitely happening. There’s no shortage of “stuff to do” in DeFi and over the past few months the pattern is that it maxes out the transactional capacity every single network it touches. There are currently multiple networks in production (BSC, Polygon, Solana) that have billions in TVL and handling hundreds of transactions/second right now and no shortage of contenders/alternatives and a huge amount of innovation at every layer.
Complaining about nothing to do on Bitcoin feels like complaining how empty the gopher server are after everyone’s moved onto the web.
Sure, DeFi would be really cool if I wanted to borrow crypto, or lend crypto, or trade crypto options, or take a mortgage out on a bitcoin or whatever. But for people who need to deal with a real world asset, it has very little to offer. It still cannot (and again, correct me if I'm wrong) implement a simple option to buy stock at a certain price, and is not really any closer than it was the day ETH was crowd-funded.
So, for those of us on the outside, DeFi just looks like a bunch of crypto enthusiasts finding exotic new ways to gamble with each other. It's neat and all, but I don't see how it ever really affects the rest of us.
I don't disagree there's some cool technology, and in particular in the DeFi space - the problem is it's all fruit of the poison tree at the moment. It's all dependent on price action and the price action is dependent on Tether, on sketchy exchanges, on crime and criminality, on 125X leverage, on manipulation.
And of course, there's so many problems with smart contracts - even the core idea of permanent, irrevocable transactions where bugs can leave you destitute and without anyone to speak to. And no way to unwind them. [1] Unless you're big enough, I guess, and can just fork the chain like Vitalik did with the DAO.
You're still missing the forest for the trees. All of this was created in the last 2-3 years and already it's replicated most of what's in traditional finance. It's the rate of innovation that is important, not the current y-intercept.
Furthermore this is a global system that anyone can contribute to. How hard do you think it is for I as an Australian to build a financial firm that interfaces with Bank of America or the NYSE? It's almost impossible. In DeFi I can spin up my own app in days.
Aave is used for being able to borrow against your crypto assets, so if you need a loan you don't have to sell, this isn't a service any bank offers. You can also just deposit your assets and earn interest on them.
In 2009 most of my colleagues similarly dismissed AWS "Oh it's just some easy storage with a way to spin up servers, big deal. Bare metal is cheaper and easier". It wasn't until most business components were automated that it became an obvious choice.
Now imagine you're starting a new financial firm and want to offer an exchange, options, perpetuals, savings accounts, loans etc. You could build all these pieces yourself for a few million dollars and a few years work. Or you could use DeFi protocols, build a nice easy to use front-end and be up and running in a few months.
While extremely interesting and even innovative, of those innovations are only useful in the hermetic world of their own blockchain, due to the oracle problem. The idea of real-world DeFi is purely hypothetical, at this point.
The problem is it not a "new technology" -- the original Ethereum DAO was made 5 years ago. The arguments for and motivations for the 0x DAO read exactly the same as 5 years ago, and the same as many other decentralized government schemes that came after.
Is this going to be better than the previous N attempts? I seriously doubt it.
This DeFi stuff is playing with fire because the products being released have significantly outpaced the state of the art in building safe smart contracts.
To make an analogy, imagine that instead of DeFi, we were talking about skyscrapers. Imagine that thousands of engineers funded by millions of people who believed in them were building 25 kilometer tall towers using technology that they discovered in Isaac Arthur videos. And they were doing it today, before any of the technologies like active support structures had been properly matured. That's what's happening here. It's not that building towers is bad or unsafe, and it's not that the technology behind 25 km towers is fundamentally unworkable, but it IS the case that you shouldn't be doing it just yet given our current engineering knowledge.
Defi is insanely cool, insanely powerful, and it will dramatically change the landscape of society. But given the state of today's technology, if your product is anything fancier than Uniswap (sorry Maker, sorry Curve, sorry YAMs, sorry Augur, etc), it's not safe and it's ahead of its time. A lot of these projects are repeats of things like pets.com. Great idea, but it was too early (Amazon eventually fulfilled the vision though).
I agree. I've been holding BTC for a couple of years as I feel that international accessibility coupled with scarcity makes for a great store of value. But DeFi I still fail to wrap my head around.
My main concern being: DeFi could get harsh competition from traditional financial actors by them getting up to date on accessibility. Thus appealing to a new, more decentralized userbase.
DeFi is just a rebranding of smart contracts, which are still a hammer looking for a nail. If anything, it's just more baseless speculation like GP said.
I understand your perspective on DeFi in general and agree that it is necessary. Perhaps it's a case of perfect being the enemy of good enough. It does make me wonder if the current generation of crypto will be disrupted by something that functions in line with the stated goals of crypto AND is rolled out in a way that aligns with it? I guess they are betting on lock in but what is to stop dapps working with multiple protocols/cross platform in the future?
DeFi is terrible. I spent a lot of effort digging into the DeFi ecosystem but it's either scams or pointless. I've seen one or two interesting ideas like e.g. these decentralized hedge fund things, but 100% of them are money losers relative to just holding eth - and that's without factoring in all the wasted money in gas fees. DeFi is DOA.
Reposting my comment from another thread about DeFi. There's clear innovation and utility in that space and it would be a shame to kill it all over the worst crypto has to offer.
"There are financial primitives that cannot exist in traditional finance that I'd call pretty novel. For example flash loans allow uncollateralized loans for millions of dollars[0]. Or take KeeperDAO[1] or Dai[2] or any of the other meta protocols generating returns by providing utility. Also the sheer fact that this is all decentralized/identity-less is already a novel aspect.
probably because it's 2023 and you're still regurgitating this superficial cryptoskepticism. there's been countless attempts over the years to answer your question, including on this website. if you still need to ask it, then the charitable interpretation is that you haven't been paying attention; in that case, you shouldn't consider yourself in a position to assert your opinion on the matter, either.
And this doesn't even begin to discuss the broader DeFi ecosystem (https://www.youtube.com/watch?v=H-O3r2YMWJ4) and NFTs (https://news.ycombinator.com/item?id=35473327). Defi and NFTs haven't gained much traction outside of early adopters (and probably won't, because their reputation won't get redeemed) but the technology is nevertheless valid and operational.
I appreciate the effort you put into your response!
I think the conversation has diverged quite a bit from my original point. I’m not even trying to argue that uniswap is not useful or an improvement. Instead I’m pointing out that when we compare defi protocols to the traditional system, the core services are largely the same. Defi is an attempt to allow anyone to participate in the roles which are usually accessible only for institutions. That doesn’t mean those roles are just now being invented by uniswap/aave/whatever.
Unrelated Opinion: defi’s practical utility comes from circumventing regulation and adding leverage to a crypto position. (Eg no KYC, selling AAPL tokens, borrow tether against an ETH position to buy more ETH)
I get your concern about the current-state. The "dev/money" ratio needs adjustment. Market cap/ICO/yet-another-cryptocurrency is not what excites me.
I am working on a simple premise: The DAO (perpetually running, globally accessible, democratic kickstarter) would have been a good project to see succeed. It failed not because it was a bad idea, but because we rushed into it without tools like this one. Augur, Aragon, 0x, Golem, Filecoin are other projects that might be worthwhile. Also ZCash (doesn't have smart contracts yet, but you should really look into the work Ariel Gabizon and company are doing.)
You wouldn't want to write an linux kernel code without a compiler, would you? You shouldn't write immutable code without formal verifiers. Agree?
That's because when most people use "blockchain" or "DeFi" they're using AML/KYC entities that post their transaction logs to public servers. Law enforcement eats this up because it saves them the trouble of getting warrants for investigations.
Bad for customers to be sure. Most have no idea what they're doing and have fallen for a scam hook, line, and sinker. They (loudly, incessantly) proclaim to their friends the benefits of a new money paradigm while deriving all sustenance through the umbilical cord of OldFi. ChromaFlair on a Model T.
The article itself is a hot mess of muddled thinking. It starts by talking about the Bitcoin white paper (not a "manifesto"), then asking the absurd question: "Why can't DeFi make good on the promise?" The reason is that "DeFi" is about as far from Bitcoin as "car" is from "carpet."
The Bitcoin white paper describes the application of proof of work to the problem of electronic cash. The vast majority of DeFi projects are just centralized ledgers operating through trusted institutions. They are the very definition of "mint" in the white paper - a single, corruptible player that sets the rules - arbitrarily if need be.
But doesn't this just give the game away? It seems like you're simply agreeing that the only reason this is happening is crypto hype. There is nothing actually better about crypto for this application, it's just channeling (or taking advantage of) people's general excitement about crypto.
And, honestly, I get that. There's nothing wrong with wanting to participate in something new. But nobody should be deceived into thinking that DAOs are really creating any important new capabilities here.
DAOs, and AMMs are interesting - there's a lot of potential in leveraging DeFi to make systems that can work in ways better than existing legacy tech, it's just hard and people don't have it already figured out to the point where looking at it makes it obvious. General public state is a new thing and how it can be used is being figured out (oracles, programmable money, etc.).
When something is new it looks more 'pointless' and toy-like. It takes a while for its value to become truly obvious to everyone (and it requires some people to see that value early).
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