Erik Weijers, 5 months ago

DeFi running fine despite the crash

Although crypto as an industry unfortunately does not look good in the recent crash, it is notable that the chaos is caused by the centralized lending platforms and hedge funds. Decentralized Finance (DeFi) in particular has continued to run smoothly. The exceptions are Bancor and Solend.

While several crypto lending platforms and hedge funds ran into trouble last week (including Celsius, 3AC, Babel Finance, and Voyager), the major decentralized crypto markets continue to run largely without issues. The biggest lending apps, such as Aave and Compound, were trucking along nicely. They stayed up and running and people could deposit and withdraw just fine.

A black hole versus transparency

This is in stark contrast to a centralized platform like Celsius, which was forced to halt withdrawals. A key difference with DeFi is the lack of transparency. With lending platforms like Celsius, you park your money and it disappears into a black box. You trust the company to take responsible risks in amassing interest. That clearly hasn't been the case.

With DeFi, on the other hand, transactions happen on-chain and are therefore publicly visible. Although addresses are pseudonymous, it is visible what amounts have been deposited and lent, and what the collateral is worth. The Total Value Locked (TVL) in DeFi has dropped from 200 billion to 70 billion since the Terra ecosystem crash. Yet this did not lead to any major problems.

DeFi also has issues: Solend and Bancor

Still, some DeFi protocols did experience their issues during this crisis. Large movements of capital are forcing some protocols to take measures that they would rather not take and that go against the ethos of crypto. Code is law, after all. The extent to which teams of developers, through a hastily formed DAO, wanted to claim control over a whale's credit has been hotly debated since the Solend debacle.

Bancor, an automated market maker, is also in trouble. It discontinued its protection against impermanent loss. That a was a service the offered: a kind of insurance against the risk of loss that capital depositors face when they enable trading in liquidity pools. It seems that large parties (Celsius, it is rumored) have withdrawn large amounts of BNT (Bancor's own coin) from Bancor, so the platform can no longer provide enough liquidity: in all trading pairs BNT is included.

Featured articles
Four trading strategies for crypto
Bitcoin and Ethereum: what are the differences?
What determines the Bitcoin price?
Related articles
After FTX crash, DeFi gains users

Nov 16, 2022

The reverberations of the downfall of crypto exchange FTX are felt across crypto. One immediate aftereffect is that crypto investors have been moving their stash from exchanges to cold storage. The other is the rising popularity of Decentralized Finance.

Trade anytime, anywhere

Boost your trading impact and reaction time in over 80+ cryptocurrencies via instant access to your portfolio with the LiteBit app.

  • 2525 Ventures B.V.
  • 3014 DA Rotterdam
  • The Netherlands
More info
  • About LiteBit
  • Careers
  • Business account
  • Support
  • Sell
  • News
  • Education
Subscribe for updates

Sign up to stay informed via our email updates

Subscribe
Explore popular coins
© 2022 LiteBit - All rights reserved