Pure decentralized finance (DeFi) protocols are even better than more centralized lending and crypto lending companies during this bear market. This proves that computer code and transparent standards provide “better results,” crypto essayist and former BitMEX Written by CEO Arthur Hayes.
Go into detail on the collapse of the crypto hedge fund Capital of Three Arrows (3AC), as well as issues faced by centralized lenders such as Celsius (CEL), BlockFi, Finance at Babel, and VoyagerHayes argues that the actual DeFi platforms have escaped the market turmoil relatively unscathed.
Compound (COMP), Aave (AAVE), and MakerDAO (MKR) are all DeFi protocols that feature the drama surrounding Three Arrows Capital, Hayes wrote. He added that in protocols like this, there are no “arbitrary decisions made by individual people.”
What this means is that loans that do not maintain adequate collateral ratios will automatically be liquidated by the protocol, regardless of who the borrower is or how good their reputation is.
As an example, Hayes pointed to a recent proposal to change the Compound’s collateral requirements. In the Compound protocol, “3AC is just an address with balance,” he says. “It’s not a collection of people with a specific pedigree that indicates they can and should be trusted to pay off what is owed even if there is no necessary collateral up front.”
“If you take confidence out of the equation and rely solely on transparent lending standards implemented in impartial computer code, you get a much better result. This is the lesson to be learned,” he added. niya.
In addition to the DeFi protocols mentioned, Hayes also said that the currently failed algorithmic stablecoin terraUSD (UST) “works,” and that it is “DeFi at its core.”
“The UST code is implemented 100% as designed. It works; but investors don’t care to understand how it works,” he wrote, adding that it is the code itself that “eliminates 100% of the value of the ecosystem” in when the demolition of UST began.
“It’s just math and inevitable; the fact that many refuse to read the whitepaper is not TerraUSD’s fault, ”he said.
Finally, Hayes argues that the US Federal Reserve or another central bank is “sure” to bail out troubled crypto funds like Three Arrows Capital and centralized lending firms, but they still won’t do it.
“These entities are not part of the club [too big to fail] financial institutions, and therefore die an untimely death. But we will not shed many tears, for we have learned through these trials and tribulations that the promise of a new decentralized financial system faces another test. ”
The irony of the situation that DeFi – despite big losses this year – is a winner in relation to centralized finance was pointed out by some on Twitter:
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