DeFi Criticism: In addition to more speculation, it is an amplifier of greed and fear

Time:2021-12-24 Source: 1211 views DeFi Copy share

There is no doubt that the blockchain world is the "Wild West" of our age, and the DEFI field provides a lot of money-making opportunities. I can't believe that the development of DeFi is so fast and brutal. Head projects such as AAVE and Uniswap continue to gain the interest of U.S.-listed companies and institutions; there are countless "DeFi Lego" projects that provide services on top of head projects such as Uniswap, such as providing leveraged market making ( ALPHA / ALPACA) ), or the machine gun pool (Yearn) that constantly adjusts the position to find the highest profit; not to mention the new projects that are constantly on the line, cutting new leeks on the new public chain. In this article, let us put aside the belief in the blockchain and the vision of the future, and talk about what DeFi is used for now, and what is the investment logic behind it.

  Why did DeFi rise? What problems does it solve?

  What problem does Defi solve? If it does not include the provision of a quick way to roll out money, DeFi's current main uses are to increase leverage, trade altcoins, and insider trading. DeFi encourages users to use its own platform and provides yield farming, attracting users in the currency circle to borrow at a negative cost, increase leverage to speculate coins, or go online and trade altcoins quickly and at zero cost. Users can even trade altcoins. The "synthetic stock" in DeFi completes insider trading in the stock market. Indeed, DeFi, whether it is the same Aave to the center of the borrowing and lending agreement, or the same Uniswap decentralized exchange is indeed a possibility to provide financial future, but their asset base currency is encrypted, and the encryption currency The biggest use at present is speculation. This means that the problem solved by the DeFi project is: how to better and more convenient speculation. They are not all that far away from the financial system that changed the world.

  However, for the currency circle itself, DeFi is undoubtedly a revolutionary innovation: when the cryptocurrency under the hands of Leek will be "developed" several years away from the "star sea", DeFi has made their coins have practical uses! With DeFi, these virtual currencies, which are currently air, can be used to lend to short sellers on Aave to earn interest rates, and they can also be used to earn platform coins for liquidity mining on Uniswap. After pledged mining, the emergence of DeFi gave cryptocurrency holders more reasons not to sell in addition to belief.

  DeFi-The greed and panic amplifier of the currency market

  As mentioned above, the emergence of DeFi provides users with more speculative tools, which is beneficial to the currency market as a whole. Not only does DeFi give more reasons not to sell cryptocurrencies, but its own mining rewards will increase the demand for cryptocurrency purchases. However, the emergence of DeFi has also greatly increased the number and supply of cryptocurrencies, whether it is the constantly emerging DeFi platform currency itself, MLM currency and air currency generated for speculation.

  DeFi has simultaneously increased speculative demand and money supply for the currency circle, which has caused the ups and downs of the market to increase.

  In the bull market, users and new funds in the currency circle are incremental. They will be attracted by various forms of "MLM coins" and DeFi mining strategies. The emergence of DeFi provides the currency circle with more liquidity and Buyer pressure. More transaction demand means higher DeFi platform currency price, higher platform currency price means higher liquidity mining rewards, higher mining rewards means more miners and more miners It means more cryptocurrency demand, and more cryptocurrency demand means a higher overall market value of the currency circle. This creates a spiral upward cycle, because as the currency price rises, more new users and funds will participate in this market, thereby continuing to push the currency price.

  The negative impact of DeFi on the entire cryptocurrency market is reflected in the selling pressure brought to the market by the "digging, selling and raising" strategy, and various MLM coins and air coins listed through decentralized exchanges. In a bear market, users and funds in the currency circle are in stock, but the mining rewards and new "air coins" of the DeFi platform will continue to flow out to the market, absorbing market liquidity and funds like a vampire. Smart investors will use the "digging, selling and raising" strategy to obtain stable delta neutral gains when the market is unstable: first hedging the fluctuation of the base currency pair and then participating in mining, then selling mining rewards every day, when the rewards are reduced Withdraw the principal. This is undoubtedly negative for the entire cryptocurrency market. Once the mining, selling and raising strategy dominates the market, the hedging demand of miners will put selling pressure on the futures market, and the continuous decline in spot prices will greatly reduce the demand for leverage by users, which leads to lower lending interest rates on lending platforms. At this point, the lock-up amount and handling fees of the DeFi platform have also been reduced, which has affected the fundamentals of the DeFi platform currency-and has further promoted the "mining, selling and raising" situation. In addition to the downward spiral caused by the "digging, selling and raising" strategy to the market, decentralized exchanges have also made new MLM coins and air coins more rampant. Through DEX, anyone can issue coins and provide new cryptocurrency trading pairs-this is extremely unhealthy for the long-term development of the currency circle, especially in a bear market. These MLM coins can violently increase the currency price in a short period of time through a high degree of control and a built-in "destroy mechanism". However, once enough leek investment is attracted, the issuer can put all the coins into the DEX liquidity pool to suck up the flow. Or use "hacking" as an excuse to take away user funds and run away. Although users in the entire currency circle are extremely disgusted with supervision, if new users lose money on a zero MLM coin mining project, this is not what we want to see.

  Where is the future of DeFi

  As long as central banks around the world continue to find excuses to provide excess liquidity to the market as they do today, and the real return rate continues to be negative, there is no reason why more financial institutions will not try to invest in cryptocurrencies and take a share of the profitable field to ensure them. The income of China has not underperformed the speed of the central bank's printing of money. This is also the source of interest of major financial institutions in DeFi mentioned in the previous article: even in a bear market in the currency circle, the 3% stable currency deposit interest rate on AAVE is better than any money market fund in the traditional financial market. The question is, when the central bank finally had to close the valve of over-issuance of currency, and the speculative demand dropped to a freezing point, what other application scenarios for DeFi? Perhaps one day, we will return to the essence, NFT commercial bills , remove banks through decentralization, and provide short-term financing for enterprises? Or maybe with the explosion of the meta-universe, more of our GDP will be generated in the virtual meta-universe, and DeFi will be the basic pillar of the meta-universe economy? In any case, the DeFi we see today is supported by virtual cryptocurrencies, and the main demand behind cryptocurrencies is speculation.

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