DeFi in Trouble?

One of the benefits of the current need to remain at home as of late is the ability for me to stay a bit more up to date about everything occurring around the various initiatives and industries I follow. One of the pieces of content I always enjoy reading although not as timely has been the @coingecko quarterly reports. This time around, I was able to read pretty early after they released it and the great information had me wondering about the future of Decentralized Finance (DeFi).

The team at @coingecko had also released their full eBook on the subject which is definitely the most complete "go-to" guide on how to participate in this exciting ecosystem. I have read it twice already with notes on how to participate in a couple of platforms I had not considered in the past. However, after some of the events of the first quarter of 2020, I am reconsidering given some of the losses that have been incurred by some participants.

I am no where near a technical expert on any of these areas and despite being involved and participating in Blockchain technology since 2016, the technical aspects of these platforms continue to increase in complexity for a normal investor seeking how to participate and deploy capital. That is why security and knowledge continue to been a serious barrier to adoption in the space as the risk of being exploited and losing funds for simple mistakes seems to high for the masses in the near term.

This is clearly apparent when you see what occurred on the bZx exploit explained by the report. It was interesting to see how coordinated this had to be in order for its success in addition to the different platforms it involved including exchanges! This makes me think about how we can be at risk despite most security measures most of us already take in protecting our crypto and cyber awareness.

However, the event that occurred on March 13th extends the concern further as the issue brought losses to many of the participants of the MakerDAO platform which is central to the DeFi movement. As if the fact that some assets across the Crypto asset class being down significantly (ETH down 40%) was not enough, the fact that the DeFi platform actually liquidated some positions as prices much lower, zero in some cases, is surely a problem for those considering to support the platforms of all DeFi initiatives. While some can say that the code did what was its intent, many can argue that more safeguards should have been in place.

Interestingly, DAI itself was not negatively impacted although some are steering clear of it. I, personally, have not found a real reason to avoid it completely. While not adding to the stake due to the pause in Savings rate is a first step, it is also a disappointment from an investment perspective. There may also be some longer term impacts to the platform as well so is something I am watching out for. However, I also think that the demand for DeFi is so enormous that it will ultimately allow developers to learn from mistakes and implement better processes and code itself to improve the ecosystem. If Tether was able to survive its controversy, I do not see why the DeFi platforms cannot do the same.