Defi will never die?

Last few months , The attack on the encryption industry is unprecedented ： Cryptocurrency banks with billions of dollars are facing bankruptcy 、 The largest hedge funds sold NFT To deal with liquidation 、 Centralized encryption institutions are facing collapse …… But it's amazing , After experiencing this storm ,DeFi But still standing , I believe this also reflects the value proposition that the encryption community has been advocating —— Create an open world 、 public 、 Accessible financial ecosystem .

Because of that ,DeFi Never die .

Why do you say DeFi Never die ？

Design a strong economic system , First of all, we should recognize the complex real world and accept the instinct of human greed and ignorance . Besides , You also need to understand that the strength of the economic system has nothing to do with the performance of the bull market , It mainly depends on whether it has the ability to adapt to market changes without the intervention of regulators or giants .

secondly , Judge whether an economic system can be strong enough in the financial market , The following questions are also crucial ：

1、 Whether the system can effectively clear bad debts ？

2、 For unsustainable business models , Whether the system chooses to eliminate or support ？

3、 Before systemic risks accumulate to a certain extent , Can we achieve the above two points ？

4、 When systemic risks arise , Can you actively manage by minimizing （active management） And negative spillovers （negative spillover） To solve the problem ？

in fact , Compared with centralized financial system , The decentralized financial system is more closely related to these goals , Because no matter from the design point of view of the agreement token economic system , Or from the daily financial management and the health of the balance sheet ,DeFi Everything in the system is on the blockchain , And it is open and transparent , Anyone can observe and monitor in real time , Everyone can clearly understand the investment trend and potential risks of giant whale .

We often see that mainstream media will DeFi Described as “ The wild west of Finance ”, But this metaphor is not appropriate , because DeFi The self-regulation mechanism is actually very perfect ——

DeFi Self regulation

With LidoFinance and Solend For example ：

because Lido Pledged nearly a third of ETH Total supply , After the transition to proof of interest , It may start to pose a centralized threat to Ethereum . therefore ,Lido Launched a governance proposal vote , Decide whether to limit the deposit into the current pledge agreement ETH Number . result , The self limiting governance proposal failed , Then it added 8 A verifier , Used to further strengthen Lido The degree of decentralization of the verifier set .

As Solana The largest loan agreement in the chain ,Solend Facing a more urgent situation . It was found that , If SOL Prices continue to fall , Then the margin position of a giant whale （1.7 Billion dollars ） Liquidation will lead to disastrous consequences and have a serious impact on the whole chain . So ,Solend Developers put forward a series of governance proposals to the community , For example, take over the account of giant whale and perform safe liquidation , But the final solution is to introduce a new rule —— Limit the borrowing limit to 5000 Within USD 10000 （ The whale borrowed 1.08 Billion dollars ）.

Of course , Although after taking relevant governance Lido and Solend It is likely that we will still be unable to get out of the dilemma , But the governance process of these two platforms alone can already feel DeFi The uniqueness of .

Thanks to the rules of blockchain and the transparency of activities on the chain , The community composed of internal and external stakeholders has the same goals , Work together to solve problems . The two cases mentioned above are the cases that community members follow up in time after discovering the danger signal , After in-depth technical discussion, the final solution is given , Nip in the bud .

conversely , If people turn a blind eye to these risk choices , Then the system is bound to suffer malicious attacks , The consequences will be unthinkable . So is there a general solution to such problems ？ Regarding this ,TradFi（ Traditional finance ） The answer is ：“ The government will solve it by law ”, and DeFi Your answer is very cool ：“ Let the code decide everything .”

The decline of centralized finance

Compared with DeFi Active self-help , In the past month, crypto banks that have fallen like dominoes have become much more passive . in fact , At the center of this storm is the most important hedge fund in the field of encryption —— The liquidity problem of Sanjian capital dates back to 6 It was exposed in the middle of August , At that time, Sanjian capital had been liquidated by the OTC trading platform , The total amount is as high as 4 Billion dollars .

Soon , The liquidation of Sanjian capital has exposed other high-risk shadow trading problems of cryptobanking ： Misappropriate depositors' funds , such as BlockFi It provides three arrow capital 10 Billion dollars of excess mortgages ,Voyager Digital About 6.7 Billion dollar loan . Even though Voyager Digital The capital ratio of is relatively safe （ The loan interest rate is only 4.3%）, But because of a wrong decision , It provided centralized loans that exceeded twice its total capital to Sanjian capital , Finally, it is also in trouble .

Of course , Risk trading in the financial sector is everywhere , Not just in crypto banks . The key to the problem is when the risk comes , How should the system govern and deal with them .

And DeFi The difference in dealing with risks is , Because the balance sheet of cryptobank is centralized , Therefore, the community cannot conduct independent investigation , And cryptobank's over leveraged and risky transactions can only be known to the outside world when they are out of control , And here we are , It's too late . such “ Centralization ” The biggest problem of encrypted banking , That is, most transactions are bilateral OTC transactions conducted behind closed doors , Only internal personnel can know , They will only disclose information after a liquidity crisis , Because this is the only condition for getting the funds back legally .

DeFi Openness and transparency can be avoided “ Centralized players ” Risks

If you want to know more about DeFi Our comparative advantage , Then we can see how centralized participants conduct decentralized transactions .

Let's look at three examples ——

Example 1 ：Celsius

Celsius The problem was exposed for the first time , In fact, it is because they have signs of insolvency in a series of chain loans , For example Maker There is a sum in the vault 17,900 gold WBTC The pledge transaction of cannot be repaid ,Celsius Rush to replenish funds , Avoid collateral liquidation due to bitcoin price decline （ The loan is already in 7 month 7 Pay off in full on the day ）, Soon Celsiu Other loan problems have followed , Including a sum in Avalanche On the chain 45.8 over stETH pledge , And in Compound and Oasis Loan pledge on .

In limine ,Celsius The CEO also vowed that there would be no problem , But because of Maker、Avalanche and Compound Transactions on the blockchain are open and transparent , Therefore, encrypted users soon found potential risks , Also began to warn the community . Sure enough ,Celsius Soon announced the suspension of coin withdrawal , Although the alarm bell sounded a little late , But if not DeFi Public information of , More people may suffer losses , The problem will last longer .

Example 2 ：Terra

Actually ,Terra This disaster was also caused by DeFi The transparency of , because Terra Liquidity in Curve The agreement dried up quickly ,“UST The exchange rate is 5 month 7 I was under pressure for the first time on Sunday , Mainly from USTw-3CRV Curve A sum of capital pool 8500 Thousands of dollars in UST To USDC The exchange of …… This large transaction has further shaken the public's confidence in the liquidity provider of the capital pool , People quickly extracted their 3CRV, Lead to 5 month 8 Daily capital pool UST：3CRV Down to 77%：23%.”

The rest of the story , I believe everyone already knows .

Millions of Terra Investors began to panic ,Do Know Posted on twitter “ More will be deployed UST” Famous remarks , and Terra The central entity behind Luna Foundation Guard Then the turnover value begins 15 Billion dollars of bitcoin to stabilize its algorithm stable currency . All of these operations , There are no rules based on smart contracts , It turns out that Anchor Of “ The flood ” Pour out ,Terra It collapsed .

Example 3 ： Three arrows capital

In terms of Sanjian capital , Many analysts know that their balance sheets are unhealthy , Because the data on the chain clearly proves that they were in LUNA Lost in lockup 5.6 Billion dollars , Then it went off the shelves in July stETH Position .3AC The mystery of bankruptcy is not complete , But some fragment information is enough for us to speculate on the problem .

Final , You will see that these centralized players are rapidly approaching bankruptcy , Why go bankrupt ？ because CeFi High risk and leveraged closed bilateral transactions between platforms can only be solved through legal channels , This is also their only choice , And maybe you can win a better result for yourself in court . by comparison ,DeFi There will be no similar problem , Because under the premise of openness and transparency , You can't argue with smart contracts .

The above three examples prove one point ：Celsius、Terra And Sanjian capital are not really on the chain DeFi, We only know the risks before the night , This kind of crisis is really difficult to avoid and prevent completely , But if they are real DeFi, Maybe tragedy won't happen .

Conclusion

Greed and stupidity may be human nature , Just like the Scottish Enlightenment philosopher David · Hume said , A truly flexible political and economic system should be based on the basic facts of human nature , He said so ：

“. Everyone should be considered a rogue , In all his actions, there is no purpose other than personal interests . We must manage him through this interest , Although he is still greedy and ambitious , But they will be willing to seek cooperation for the public interest .”

DeFi The advantages of , In fact, it makes use of human nature , Then a ruthless smart contract is designed around this nature . stay DeFi in , The code is the liquidator , Code is the settlement engine . So you will find ,Celsius、Terra And Sanjian capital fell , and Aave、Compound and Maker Etc DeFi The agreement works well , such as 2022 year 6 month ,Compound、Aave and Maker And it's done “9 digit ” Clearing transactions , among Compound The liquidation amount is about 990 Thousands of dollars 、Aave The liquidation amount is about 260 Thousands of dollars 、Maker The liquidation amount is about 4900 Thousands of dollars .

stay DeFi in , There is no closed door negotiation , Did not postpone the issue to the court , No lobbying regulators , We only do one thing ： Comply with smart contracts , In fact, this is what a flexible economy should look like ？

this , Namely DeFi.