What should we do about all this DeFi stuff?

in Project HOPE8 months ago

What should we do about all this DeFi stuff_.png

Some time ago it was the Ico stuff and now everybody is crazy about this DeFi. The problem here is that probably 90% of all the users don't get what it actually means. I've read somewhere a great definition of DeFi:

DeFi is when nerds start to understand how finance is working

unfortunately I don't remember the author

So yes DeFi is mainly something that is understood by people who are interested in code and numbers. For us common mortals it's just stuff that we have difficulties to grasp.

I worked for a certain time as a banker in a small Swiss Bank and I had the chance to learn everything about banking. Without understanding all the code, the smart contracts and the basis of the math behind, I get that DeFi tries to substitute the monopoly of the banks.

Lending

Traditional Banking
Let's say you have a portfolio of shares. Your bank could use these shares as collateral and give you a credit. For this credit you pay an interest.

On the other side, the bank offers savings accounts to their customers. The bank pays an interest on the capital deposited. The bank makes a profit with the interest margin.

DeFi
Platforms like Maker Dao, Compound or Aave offer the possibility to store cryptos into a vault and give you credit for it. Your cryptos are still yours but you can use the credit to invest, trade or whatever.

Interests are offered to people who deposit assets.

Trading

Traditional Banking
In the past you needed a broker to trade shares or other commodities. You had to call him and deposit your order on the market. For that you had to pay a fee called courtages. Fortunately with time you started to be able to trade directly online. The funny thing is that these courtages certainly decreased but are still around. The bank has to live one way or another.

DeFi
With platforms like uniswap you can exchange coins and tokens in an automated way using liquidity pools instead of order books. The people providing liquidity get a part of the fees and they can make a profit like that.

Money supply

Traditional Banking
A bank has the ability to give a loan. This loan will then be used by another person as collateral again to get another loan. This is the way how normal banks can increase the money supply.

DeFi
Thanks to lending platforms like Maker Dao, it is now possible for us to increase the money supply. We can give our Ether as collateral and get DAI for it. This DAI then changes hand. The other user can then use this same DAI as collateral for another loan. Through all this we have increased the money supply. DeFi allows us to print money....

In all cases thanks to DeFi the middle man, the bank has been cut out of the equation. This saves a lot of costs.

What does DeFi bring to all of us?

I believe that a big part of the hype will pass but we are still at the beginning of all this and it can change our financial world in the long term.

What are the challenges?

At the moment DeFi is quite restricted to people who understand it and people who have quite a big portfolio. The big majority of the DeFi is taking part on the Etherium blockchain and because of the demand the transaction costs and especially the costs for smart contracts is going through the roof.

DeFi has to become accessible to the average people. It has to become understandable and easy to use. The nerds developed their projects, now it's the time of the normally clever people to take over and make all this simple and easy...

What do you think about DeFi?




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Great parallel with the CeFi (banks), Achim!

The difference between ICOs and Defi is that Defi is not 'initial'. It's ongoing and something is already built. If it's sustainable, it will keep working, otherwise it won't. Defi has untapped potential, but also a lot of craze around it, which often makes people take greater risks than their situation allows them to.

In that sense, while the learning curve is still so steep and regular people don't better understand what it's all about and how to participate and the level of risk associated with each of their decisions, maybe it's ok the access is kinda restricted to people with higher budgets because of the huge fees.

The difference between ICOs and Defi is that Defi is not 'initial'

I totally agree with you. ICOs was mainly selling wind to naive people whereas there is real technology behind Defi. As you said a lot of this Defi is still in very early stages and it is therefore quite risky. Smartcontracts is nothing else than code and if the code has weeknesses it can be quite problematic. When ETH prices dropped in april, people on Maker DAO lost everything because there was a bug somewhere.

Thanks a lot for your comment!

You mean yield-farming or solid defi? :D yield-farming centered around a high inflation yield-token is amazing pyramid shit --> 2017 2.0. Being in crypto from eo 2016, so long enough to know when to puke. On one side it disgusts me. Its like wrapping a human with his insides. It shows all what dominates our behavior: a simple emotion driven stem brain. On the other hand it is pure beauty. as you said: this is what banks do all the time. Getting over 10% return for providing liquidity? Was normal 30 years ago. We younger people feel as if it is dirty money. The yield-token bring in the pyramidal element, it is set up to collapse but not because of the yield per se.

some pools will be pure scam right from the start, others will be exploited bugs and well...a very few will hold. All this stimulus money meets defi at the right point in time, everything is set up for a short and hard mania. Well long term moderat-defi will reach normies for sure but not without some trusted third party like gemeni, binance...just my guess, maybe it will simply go on from here

Well long term moderat-defi will reach normies for sure but not without some trusted third party like gemeni, binance...just my guess, maybe it will simply go on from here

Experience has shown that in every hype there were some things that survived for the long run and I believe that you are right that it will be the moderate instruments that will make the cut. You are also right that people are not used to have no responsible third party to make such deals and it will probably last a bit longer until DeFi can become mainstreem technology.

Thanks a lot for your comment!

As I can see there are still some security worries, as, at the end of the story, it is a computer code... and codes can be hacked...

On the other side, I'm using compound.finance supplying my spare BAT... But it was more for a test, and I'm aware that I would be probably in negative, because of the high ETH gas fees :)



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it is a computer code... and codes can be hacked...

And code can have bugs :-). Even though these smart contracts may work perfectly in normal conditions, it's only after a real stress test that you see whether they are really working in all conditions.

For the moment I leave my hands from DeFi on Ethereum because I simply can't afford to pay the gas fees...lol.

Thanks a lot for your comment!

I love the last paragraph :) for it to become mainstream it must not be rocket science anymore.

As first mover, much money can be made, but with high risk as well.

Providing liquidity to one of the more reliable protocols might be a relatively safe way to earn some interest in your holdings, although when liquidity gets bigger and more stable, fees will become lower.

Since there are now also projects that automatically search for the highest yields, eventually all will get more balanced and interest will be lower. Except for the new risky protocols, until they die or become balanced.

Thanks a lot for your comment. First mover have the biggest chances to score the big pot and also the biggest chance to loose it all. I prefer to wait till things calm down and see what remains of all of it :-)

That is probably the smart move 😁

a good explanation but i think for now, Defi will continue to be for nerds and people who know how to program But it has great potential and the part of the credits for saving our cryptos is very positive.

I quite agree with you that for the moment this is not stuff for "normal" people. It will be interesting to see how this develops however.

Thanks for your comment!

Hello friend, I understand little about Defi, but according to what you mention it offers us the opportunity to obtain credits and other benefits, that seems great for those who handle crypto, I hope that later on small investors have a place.

Greetings, I hope you are well !

The DeFi world remains quite complicated. I've followed some online tutorials how to make swaps and so on but it's simply not so user friendly yet. However I believe that it has a lot of potential. The technology is interesting and I believe that it should develop to become easier to understand and also cheaper.

Thanks a lot for your comment!

Hello @achim03
The truth is that I understand something about DeFi, and the main thing is that, as you name it, the banks are trying to get out of the way, using the smart contracts as intermediaries.
However, although I have read something about it, from an operational point of view I don't fully understand it.
Another thing that keeps me on the sidelines is the issue of operating costs, the price of the GAS is through the roof, I don't think that for now it is something for the average person, either because of costs or because of the ease of understanding it.

I completely agree with you. I have followed some tutorials how to use Whive on Uniswap and it required about 7 steps to set it up and then the whole thing cost 30$ in transaction fees... This simply is not ready for everybody's use. GAS prices are simply astronomique and because of the DeFi boom they won't come down soon. This has actually a negative effect on all the etherium blockchain. Nobody can pay the gas fees anymore and people might look for other platforms...

Thanks a lot for your comment!

Now you can start to experience it as well on Tron and EOS!

I've seen that I have wtron in my tron wallet. So there is already a link between tron and etherium. Are there some DeFi platforms there already?

You might be interested to check the review I did about Oikos on Tron.

CC92 - Oikos DeFi Solution on Tron Ecosystem

Thanks a lot for this video. I will definitely have a look at it!

My pleasure. :)

Dear @achim03

Another great piece, absolutely worth my time and attention :)
Solid read. Already upvoted and resteemed.

The problem with crypto (one that I've always seen) is that it's not only store of value = digital version of stocks (which is okey with everyone, including central banks, regulators, politicians). But it's also challenging current monetary system.
Which is the biggest power out there

All crackdowns in 2018 done in various countries were the result of central banks looking at crypto as a hostile technology. If DEFI will be challenging traditional banking system, then ... crypto industry will have powerful enemy. Enemy, which this market is just to small and to weak to handle and conquer.

To wrap it up: I'm not sure if crypto space is ready for DeFi. Time will show.


The other serious issue I see with DeFi is the fact, that learning curve is very steep. And it seem that it's much easier to explain ICO, STO and even Masternodes.
Just like you said: The problem here is that probably 90% of all the users don't get what it actually means.

As long as it will not change - I would expect DEFI to be nothing but another hype. Which will die down one day and will be forgotten. Just like STOs and Masternodes were.

Enjoy your day buddy,
Cheers, Piotr

Thanks a lot for your great comment Piotr. I greatly appreciate. I see that in the long run DeFi could become a valid competition for banks but I totally see your point. When the people in power start to feel threatened by the technology a new witch hunt may be started by politicians and the bank lobby.

I think that the difference between Ico, STO and DeFi is that with DeFi we have not simply nice whitepapers but real technology that is being tested. As with former hypes not every project went down the hill. Some ICO became nice businesses and probably there will be soem DeFi platforms that are here to stay...

Have a nice day!

Great write up, but it's already easy and simple in many cases (uniswap) :)

it's already easy and simple in many cases

Your posts about DeFi helped me a lot ot understand things. They are written in a language that people can understand. For people familiar with Crypto, I believe that it's quite an accessible technology. Maker DAO or Uniswap seems quite accessible platforms. However I'm dealing in Crypto for over 5 years and I see the limits when I simply try to explain to people how hive or even bitcoin works...

Thanks a lot for your comment!

Dear @achim03 before I respond to this post of yours I must admit I was quite concerned for your well being.
Usually I see your posts quite frequently. Though this time round I saw a gap of 16 days so I was getting worried.
As I do not have your email, skype or discord details I was at a loss of not being able to call/ contact you and know about your well being.
Hope you and your family are fine #safe and doing well?
I feel we should have some contact details apart from these blogs to get in touch.

Coming back to the topic
I see De-Fi is getting bigger and bigger. The hype is building up and more and more projects are being launched with multiple X valuations being given to their tokens in a span of only a couple of days.
However all these projects may not be original and may not solve a real world problem- My benchmark of a safe and sound project.
Besides the high gas fee keeps a lot of people off these projects.
Lets the initial hype settle and real value emerge for us to benefit .
IF one is a speculator and wanna take risk it is another story.

Thanks a lot for your concern my friend. I have an offline job and sometimes I can't be very regular with my posts.

Lets the initial hype settle and real value emerge for us to benefit .

I totally agree with you here. In addition to that why take a risky investment when you know that a big chunk of your profits will be eaten up by gas fees. I believe that there are some great projects out there and they will survive but I will only touch them once they really provide me a secure way to invest and a way to withdraw that doesn't eat up all my earnings.

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