DeFi Is The ‘Worst of Both Worlds’ Which Won’t Revolutionize Finance: LTC’s Charlie Lee
On the weekend, Litecoin creator Charlie Lee took to Twitter to share his disappointment in decentralized finance (DeFi) projects. According to him, they are the worst of both the traditional finance and decentralized technology.
DeFi, he said doesn’t work on any platforms be it Ethereum or Tron. In his opinion,
— Charlie Lee [LTC⚡] (@SatoshiLite) February 16, 2020
DeFi Growing at Fast Pace
DeFi is a fast-growing sector of the crypto space with more than $1 billion locked in them. Maker (MKR) is the most popular project that dominates (61.47%) the total value locked in DeFi.
A good chunk of these projects are focused on lending such as Maker, Compound, Dharma, dYdX, bZx, and InstaDapp among others. Other categories involved decentralized exchanges like Uniswap, Bancor, and Kyber; derivatives like Synthetix, based on payments such as xDai and layer 2 on Bitcoin Lightning Network; and assets like WBTC and Set Protocol.
Lee’s comments came after Fulcrum, the lending and exchange platform was exploited for about a million worth of Ethereum.
Over the weekend, it came into the light that an exploit caused a portion of Fulcrum's ETH to be lost after bZx took the platform down for maintenance earlier last week.
Basically, “a complex single-transaction exploit utilizing a 10k ETH flash loan from dYdX, half placed into Compound and half into Fulcrum.”
The Fulcrum contract is now frozen but they maintain the funds are safe.
1/ ⚠️ Mini-thread on the Fulcrum situation ⚠️
– @bzxHQ took Fulcrum down for maintainence late last night
– Shortly after, team member Kyle Kistner disclosed that an exploit caused the loss of a portion of Fulcrum's ETH
– Fulcrum contract is frozen, remaining funds are safe pic.twitter.com/TLUnbxLooh
— DeFi Pulse 🍇 (@defipulse) February 15, 2020
Truly decentralized finance won’t work in practice
The most popular projects in the Defi space are primarily the ones based on lending that allows people to lend their coins on various dapp platforms and earn interest.
Fiat-pegged stablecoins are currently the most lending assets as it offers highest interest rates. Interest rates from stablecoin on DeFi apps like Compound are about 4 to 6% without the need for KYC. Some like BlockFi boasts of earning up to 8.6% APY on USDC and GUSD.
However, Lee doesn’t believe “truly decentralized finance will work in practice,” because “Complexity will always lead to bugs and exploits. And it will always be semi-centralized.”
“I just don't believe it will revolutionize finance,” he said.