Opinion: Here is Why We Need Responsible DeFi | by Ahmed | The Capital | Jul, 2022

The mass deleveraging in the Crypto market is a watershed moment. Better now than never!

DeFi Crypto 3AC Celsius Solend
Photo by www.Florida-Guidebook.com on Unsplash

The news coming out of the Crypto industry is, unfortunately the worse it can be. The UST / Luna collapse was just the trigger to a mass domino effect on other DeFi platforms that have been going under one by one.

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The exact chronology of events is the same. It is almost like a beat-up record. Some rumors will begin about a particular protocol being in trouble, followed by proclamations by the protocol owner that there is nothing to worry about. This will shortly be followed by news that the protocol has stopped withdrawals.

I have had the opportunity to review the downfall of Celsius & 3AC but what has struck me as the most comical incident is the one with Solend. Leave the fact that DeFi has propagated under-collateralization or even no collateral, what I fail to understand is how can a protocol allow a single large account to have such a large bearing on its own existence & the chain it’s built on? This lack of risk management is appalling, to say the least.

In my opinion, the current mass deleveraging of the Crypto market is a watershed moment. There can be no regulation, but if DeFi, and Crypto, really wants to take off, it is essential that the next set of protocols go the extra mile and develop responsible systems of risk management. I say this not just in terms of programmable tech (UST/Luna was apparently algorithmically Teflon) but also in terms of a self-governing model. This implies:

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– Limits to layering
– Limits to single account size
– Limits to leverage
– Limits to Under / No collateralization

Otherwise, I am afraid, DeFi protocols will continue to fail their customers in espousing trust.

You may read my review of the chaos in crypto here.

Look forward to your feedback.


Disclaimer: The views presented in the article are the personal opinion of the author & do not represent that of his employer nor are financial advice. Please do your own research before investing in or using any product mentioned in the article. The author may or may not be invested in any particular product.

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