Pure decentralized finance (DeFi) protocols have fared much better than the extra centralized crypto lending and borrowing firms throughout this bear market. This proves that laptop code and clear requirements give “a greater final result,” crypto essayist and former BitMEX CEO Arthur Hayes wrote.
Going into element on the collapse of crypto hedge fund Three Arrows Capital (3AC), in addition to the problems confronted by centralized lenders like Celsius (CEL), BlockFi, Babel Finance, and Voyager, Hayes argued that actual DeFi platforms have escaped the market turmoil comparatively unscathed.
Compound (COMP), Aave (AAVE), and MakerDAO (MKR) had been all DeFi protocols that performed a component within the drama surrounding Three Arrows Capital, Hayes wrote. He added that with protocols like these, there are “no arbitrary choices made by particular person people.”
What this implies is that loans that don’t preserve ample collateral ratios will probably be mechanically liquidated by the protocol, with out regard for who the borrower is or how good their status is.
For instance, Hayes pointed to a current proposal to alter the collateral necessities on Compound. To the Compound protocol, “3AC is simply an tackle with a steadiness,” he mentioned. “It isn’t a group of people with a sure pedigree that signifies they’ll and needs to be trusted to pay again what’s owed even when no collateral is required up entrance.”
“If you take away belief from the equation and rely purely on clear lending requirements executed by neutral laptop code, you get a greater final result. That is the lesson to be realized,” he added.
Along with the DeFi protocols talked about, Hayes additionally mentioned that the now-failed algorithmic stablecoin terraUSD (UST) “labored,” and that it was “DeFi to its core.”
“The UST code was executed 100% as designed. It labored; however buyers didn’t care to grasp the way it labored,” he wrote, including that it was the code itself that “worn out 100% of the ecosystem’s worth” when the UST peg began to interrupt.
“That is purely maths and was roughly inevitable; the truth that many refused to learn the whitepaper just isn’t TerraUSD’s fault,” he mentioned.
Lastly, Hayes argued that the US Federal Reserve or one other central financial institution “absolutely” may bail out troubled crypto funds corresponding to Three Arrows Capital and centralized lending corporations, however they nonetheless received’t do it.
He concluded that,
“These entities will not be a part of the membership of [too big to fail] monetary establishments, and shall subsequently die an ignoble demise. However allow us to not shed too many tears, for we now have realized by way of these trials and tribulations that the promise of a brand new decentralised monetary system has weathered one more check.”
The irony of the scenario that DeFi – regardless of heavy losses this 12 months – has been a winner relative to centralized finance was identified by some on Twitter:
Be taught extra:
– Subsequent 6-12 Months to be ‘Brutal’, however Funding ‘Planting Season’ Begins Now, Arthur Hayes Says
– As Bitcoin Retains Tanking, Arthur Hayes Joins Refrain of USD 1M BTC Predictors and Warns of ‘The Doom Loop’
– Bitcoin Nears USD 19K, Ethereum Assessments USD 1,000 as ‘Last Washout’ in Playing cards Earlier than Rebound
– Crypto Market Struggles as Bitcoin Assessments USD 20K, Analysts Warn of Additional Draw back, 3AC Liquidation Reportedly Ordered