Discover more from DT Journal
Bitcoin and DeFi in the wake of the FTX debacle
A conflict of visions
By this time you probably know what happened to FTX. I hope my last post warning about it helped somehow, but if you had too much money, that was probably too late. If you were affected, I truly hope you’re able to rebuild.
Unless you’re Sam Bankman-Fried, in this case I hope you rot in jail : )
Over the last week it was interesting to see that there were the major responses for the FTX debacle: Bitcoin and DeFi maxis.
Both share “not your keys not your coins” mentality but their differences go deeper. I’ll try to suspend judgement while I analyze their behavior, like David Attenborough does when describing the mating rituals of birds in New Guinea.
The Bitcoin Maxi PoV
All Bitcoin Maximalists have reservations about Ethereum as an asset and platform. And many have a distrust of any smart contract platform — even the ones building on bitcoin.
The main argument focuses on the inherent lack of security of these smart platforms, and how smart contract creation allows for corruption of the original monetary vision for Bitcoin. It allows for speculation, usury and grift.
Bitcoin maxi reaction has been based on the argument that if you agree with their view of the world, where Bitcoin and “crypto” are two separate things, there would be no reason for you to be using a “shitcoin casino” like FTX. And even if you use it to buy Bitcoin, you should withdraw and use self-custody.
The DeFi Maxi PoV
DeFi maxis are mostly pointing that the issue with FTX is the centralized and custodial nature of FTX.
DeFi maxis believe centralized services need to be extinct completely if possible or restricted to some very narrow activities.
The smart contract platforms are actually a way to get rid of these trusted intermediaries to substitute centralized products for decentralized products. So they’re highly desirable, despite the technological risk (hacks) and the initial trust/centralization risks
(In general, most DeFi protocols bear require some trusted setup before decentralizing and some of them have been pushing the goalpost on decentralization. Since decentralization is a spectrum, it’s hard to really draw a line in the sand to where DeFi becomes too centralized to be called DeFi)
In the DeFi camp, there’s also the moderate view. People who believe a world where we have increasing decentralization coupled with regulated centralized services. The field is exemplified by the positioning of the CEOs of Coinbase, Bitwise and most centralized services.
My own personal view
I believe I’ve seen enough useful innovation coming out of the smart contract platforms to believe they’re all worthless. However, I agree that most of the potential is in the future, and many benefits are theoretical. But the same argument could be applied to Bitcoin, 14 years in. Most of the original vision is still unrealized.
NFTs for the first time brought commerce to crypto at scale. Forget the speculative prices, I’m referring to people buying digital collectibles. Price can go up or down but this behavior won’t go away. It’s the first instance of crypto-native commerce at scale.
Decentralized exchanges like Uniswap, collateralized lending protocols like Aave and Compound are a reality and useful to some degree. Stablecoins, in different degrees of centralization, are also useful — as someone living in Latin America, I can attest to that. Decentralized storage, computing and other infrastructure is also working, today, and being used by people.
Most of these capabilities can’t (or won’t) be built on Bitcoin. So it’s very hard for me to subscribe to a Bitcoin-only view, when I see this much evidence in contrary. I really admire the simplicity of the BTC Maxi view, but I find it ineffective to push the boundaries of making use of the technology.
I’m a realist and most likely there will be a number of services that will still require centralization. So, as boring as it may be, my view is aligned with DeFi moderates. While suspicious of regulatory capture by the incumbent players, I believe sensible regulation is going to be required because some degree of centralization is going to be needed.