DeFi Part 2 Investor Beware says Eeyore

At a decentralised conference entitled The Pooh Corner Debate on DeFi, Eeyore kicked off (having won the coin toss) by pointing out 7 points that investors considering DeFi should think about: 

  • Blockchain transactions are irreversible and unregulated. If you lose money you have zero recourse, it is gone – poof! Irreversible and unregulated is a honey pot for crooks.
  • Software bugs can have the same impact as crooks. DeFi is technically complex, so there are plenty of coding errors and hacks. For example, Yam Finance quickly grew its deposits to $750 million in 2020 before crashing days after launch due to a code error. This is made worse by new services copying open-source software to create a competing platform, with problems as funds shift between platforms.
  • Modern crooks are expert at exploiting software bugs. Their gun is a computer and they know how to read code like ye olde bank robber knows how to open a lock. 
  • The DeFi FOMO is similar to the ICO (Initial Coin Offering) driver for the 2017 cryptocurrency bubble. A good story is NOT the same as a good investment. This will end in tears.
  • “Centralized DeFi” sounds like contradiction and it is. Binance Smart Chain (BSC) was pitched as a new paradigm of “Centralized DeFi”. You cannot have both Centralized and Decentralized; they are opposites.
  • Watching Wolf Of Wall Street does not give you the experience to invest in disruption. Yes, there is a lot of crookery and corruption on Wall Street. It is also possible that the next Wolf is scamming you by taking advantage of what you think about Wall Street.
  • It is simply too early. DeFi may change the world, but being too early equals being wrong. Saying “I told you so” in 20 years time does not make your money come back.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Here is part 1. Stay tuned by subscribing. If you thought Eeyore was being too negative, tune in next week  for DeFi Part 3. If it is broke then fix it says Tigger.

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