Animal associations

Crypto Lending Platforms, DeFi Seems to Have an Animal Farm Moment

Cryptocurrency proponents heralded the technology as the dawn of financial freedom and sovereignty for all, trumpeting the mantra of toppling the world’s crooked money rulers.

But when pandemic, war, inflation and recession crashed at the gates of the cryptocurrency castle, the mantra began to unravel as residents found unilaterally frozen crypto accounts on lending platforms. such as Celsius Network, Babel Finance and Voyager Digital.

Worse still, the administrators of the DeFi Solend project attempted to embezzle an account holding US$215 million for what they proclaimed to be the greater good. This idea was rejected in a community vote, only to be followed by another lending platform, CoinFLEX, telling its customers this week that they cannot get their crypto back.

Is this what financial freedom and sovereignty look like?

Parallels to author George Orwell’s political satire farm animal are clear – the farm animals knock down the villainous farmer and proclaim “all animals are equal” until crisis hits and the pigs behave remarkably similar to the reviled former ruler.

“Many DeFi protocols rose to prominence during a bull market, now they are tested and untested in a bear market or in extremely volatile times,” said Blake Cassidy, managing director of the platform. Bamboo crypto trading.

How decentralized is it?

Arguably the best-known example of crypto shutdowns is staking and lending platform Celsius Network, which halted trading and withdrawals last week citing extreme market conditions.

The company raised eyebrows by withdrawing 50,000 Ether and 7,000 Wrapped Bitcoin from its Aave position in its core DeFi wallet, as well as transferring $320 million in digital assets to crypto exchange FTX before freezing withdrawals client.

Cryptocurrency futures exchange CoinFLEX joined the ranks of crypto firms in halting user trading on Friday morning, citing (and stop us if you’ve heard this one before) “extreme market conditions.”

CoinFLEX declined to comment for this story.

The Decentralized Autonomous Organization (DAO) behind Solend, a Solana-based lending protocol, recently reversed an earlier vote allowing the DAO to take control of a whale’s wallet that was in danger of being liquidated. Community members fired back in the initial vote, saying the takeover of user accounts “sets a terrible precedent.”

While members of the Solend community saved the day, the original proposal would seem to be anathema to crypto’s philosophy of decentralization and financial freedom.

Bitcoin and blockchain proponents offer resistance to censorship, such as when bank accounts were frozen during Canada’s ‘freedom convoy’ and calls to freeze crypto wallets amid Russia’s sanction for the invasion of Ukraine was gaining momentum.

Who controls?

In a recent editorial for Forkast news, Nick Saponaro, CEO of financial blockchain platform Divi Project, said there was only one way to avoid being caught off guard.

“To regain control,” he said, “it’s essential that we move away from child care services that take care of our money for us and move into self-care products and services that give us full control of our digital assets.”

However, decentralization may not be the be-all and end-all.

Ben Caselin, head of research at Hong Kong-based crypto exchange AAX, said Forkast that decentralization exists on a spectrum and that centralized exchanges and companies have their pros and cons.

But users should be aware of what they are involved in.

“We need to be more critical of marketing language,” Caselin said. “It’s very easy to present a project as decentralized [and] without permission because you can have real ownership, but we’ve already seen last year with OpenSea, we’ve seen with MetaMask, we’ve seen with a few exchanges, there may be these interventions that are a telltale sign that this is not as decentralized [as it might appear].”

On the other hand, others consider decentralization doomed to failure, even if done well, as project creators often maintain outsized influence over the project by holding governance tokens.

“Decentralization most often breaks down because… humans are humans and the current model of capitalism and the way the infrastructure of the internet is set up,” said Giles Crouch, director of the information from business consulting firm NordSpark. Forkast in a written comment.

“In all cases with crypto, someone or a few end up controlling and governing this coin. The economic model is in contradiction with the ideal.

Divest from DeFi

As these platforms fail, capital is also fleeing the DeFi ecosystem.

The total value locked in DeFi has fallen more than 60% since early May, from over $200 billion to just over $75 billion on Friday, according to aggregation site DeFiLlama.

DeFi promised to allow people to be their own banks, but with this rate of decline – Caselin called it a “denouement” – far exceeding the broader crypto market, it raises the question of whether it is is what people really want.

Centralized exchanges have enabled the onboarding of many more people in the industry who would otherwise not have had the understanding, time or inclination to set up non-custodial wallets and engage in the more depths of the ecosystem, Cassidy said. Forkast.

“User experience has always been an issue for cryptocurrency and the infrastructure just isn’t there yet,” he added, “until the industry matures, which could take five or 10 more years, that, you know, these intermediaries or these centralized platforms will still play an important role.

From his perspective from years of leading user experience in technology research, which included decentralization, Crouch had an even more pessimistic view of the situation.

“As for the general public, at large? Very few people understand or care about it,” he wrote. “Public distrust is very high at the moment and most people view it as a speculative market at best.”

Caselin acknowledges that the “convenience factor” can be a hurdle the industry must overcome for adoption to become truly mainstream, but much depends on the user’s situation.

Users in developed economies with relatively stable financial infrastructure may not want to bother to learn more about DeFi or other more involved crypto functions at this time. However, this may change if frustration with their economic situation increases.

In the meantime, he hears calls for decentralization and the abolition of institutions and banks, but recommends a little patience.

“Maybe in 100 years we will have this utopia, but I think we have to be a little more generous with ourselves as humanity,” he said. “We are currently still in a decades-long process of going digital and understanding some of the parameters of this new way of life.”