A prelude to DeFi bursting onto the scene?



The showdown between Reddit and Wall Street last week was truly “the beginning of the end for central finance,” as Gemini founder Tyler Winklevus said. Described that? Or is it just a one-time example of individuals who got together to correct a perceived mistake – without long-term economic consequences?

As GameStop, a struggling video game retailer, was attacked by hedge fund short sellers, a coalition of individuals led by r / Wallstreetbets, the Reddit forum, jumped to GameStop’s rescue by buying its stock, driving its share price. From $ 20 to the local currency equivalent. As high as $ 483 – and doing some real damage to the short traders in the trade.

But then, Robinhood, the rebel-chosen trading platform, suspended the purchase of GameStop’s GME shares and seven more. Redditors shouted, asserting that Robinhood surrendered to hedge funds and other vested interests on Wall Street. Robinhood, for her part, made it clear that she had to suspend GME purchases or ran out of funds to cover the transactions.

However, more than 30 class action lawsuits have been filed against the central trading platform – one complaint saying the suspension was just a ” [GME-shorting] She wanted hedge funds, “and another even declared that” Robinhood “stole from the poor to give to the rich. ”

Others indicated that this type of deception would not have occurred in a decentralized financial world. Along these lines, Mike Novogratz from Galaxy Digital call The GME outbreak is a “giant endorsement of DEFI,” and one crypto user, who wanted to remain anonymous, told Cointelegraph: “Preventing individuals from buying a specific stock is a form of centralized control mechanism. In a decentralized trading market, nobody will own this.” Power “.

But this opinion was not unanimous. Quantum Economics co-founder Matti Greenspan found little applause in the group purchase of GameStop stocks: “The narrative that Main Street finally beat Wall Street in its own game is very misleading,” he said, “there were boxes. Hedge on both sides of this trade. ” “It’s hard to see how buying expensive shares of a company that is losing money would make the world a better place,” he continued.

With that as background, here’s a deeper look at the lessons, if any, that can be gleaned from facing r / Wallstreetbets versus allowances. For example, if retail investors can now move stock prices, then surely they can move the prices of big-cap cryptocurrencies, right?

Is the writing on the wall?

“The events around GME and Robinhood have been a wake-up call to the wider public,” Alexei Zamiatyn, co-founder and CEO of Interlay – a research and development firm focused on blockchain interoperability – told Cointelegraph: “The events around GME and Robinhood were a wake-up call to the wider public,” adding, “I doubt most people outside of the department were Finance / Banking is aware that Robinhood’s main clients were hedge funds and not retail users. ”

“I’m not entirely sure that I agree that the recent GME saga has demonstrated that retail investors can usefully coordinate a long-term share transfer,” George Giagles, executive director of the Future Institute at the University of Nicosia, told Cointelegraph. . “I see this as evidence of the market overtaking at the late stage rather than a new wave of sustained domination of the retail-led market as many commentators want to portray,” he added.

“In theory, a common retail audience can transfer many assets,” including cryptocurrency rates – but of course, that depends on the size of the audience. The Reddit forum / Wallstreetbets has reportedly mobilized thousands of individual investors to buy GameStop shares. “Overall, I think the number of retail investors will grow in the crypto space – independently if they join forces similar to the GameStop example,” said Burchardi.

Historically, retail investors – not institutions – have paid cryptocurrency prices, Lex Sokollen, chief marketing officer and global co-head of fintech at ConsenSys, told Cointelegraph, adding:

Their tolerance for risk has been higher, and the coded narrative draws more individuals looking for a new system. DeFi has placed retail and institutional capital at the level last year, which will be a key aspect to continue moving forward. ”

Generational conflict?

But what about the parties involved in the junk last week? Mark Cuban, owner of the Dallas Mavericks, noted that “the old-school investment community is currently moving towards what he describes as a“ value creation store. ”Is it really a struggle between young and old?

According to Sokolin: “We have seen not only a generational struggle, but a philosophical struggle.” Moreover, with the information gap now narrowing, original online investors are more competitive with professional investors: “They can self-regulate and vote with their money, which can compete with billions in higher financing.” William Knutenbelt, a professor in the department of computing at Imperial College London, told Cointelegraph:

“The conflict is not between younger and older generations, nor between ordinary people and hedge funds. It is more between those who believe in protecting and expanding the personal freedoms of individuals – including the right to engage in financial markets – and those who do not.”

Along these lines, “DeFi shows strong potential when it comes to protecting and promoting certain freedoms,” Knottenbelt continued, “but he is not immune to some of the types of ethically questionable activities that also appear in more centralized systems.”

Meanwhile, according to Burchardi, “It is a central conflict versus a decentralized conflict,” which may, but not necessarily, be related to age. “For example, in just one year, we have seen the value of DeFi move from nearly zero to $ 25 billion plus in locked capital. This growth is decentralized and often community-driven.”

A win for social media?

If individual investors don’t conclusively demonstrate their influence, what about social media? Have platforms like Reddit noticed that they are now a force to be reckoned with in the financial arena? “We have seen the power of social media, and strong emotions overrun financial games in the past,” Sokolin told Cointelegraph. “Cryptography really embodies this spirit, as many assets are valued by the community, not by analysts.”

Matte Greenspan, in his newsletter, agreed: “One of the lessons the world seems to have learned is that social media can be a major indicator, and even a driving force, of future price movements.”

As for decentralized financing, did it get a boost from protest when Robinhood suspended buying GME? “These developments, in my opinion, will definitely lead to adoption,” Zamiatin told Cointelegraph. “DeFi developers are now in the spotlight, and it will be up to us to include non-encrypted users and highlight the positive potential of the decentralized financial system.”

“DeFi is the day Bitcoin was in 2013 or 2015: Few early adopters are seeing the potential, while the mass market has yet to realize the extent of the disruption of traditional financing,” Gaggelis told Cointelegraph. He agreed that last week’s events would likely accelerate acceptance.

“Americans have learned the limits of their market structure,” Sokolin added. “It’s not that Robinhood removed the button. They have to clear it up with the Depository Trust & Clearing Corporation, and they are taking T + 2 trades.” [trade date plus two days] Settlement, fluctuations forced collateral requirements to increase 10 times. ”Presumably, DeFi’s automated markets have escaped this fate as they conduct their transactions in real time and open 24 hours, seven days a week.

Can DEXs Handle Flow?

Are decentralized stock exchanges ready for collective markets? Can they handle last week’s r / Wallstreetbets workload without falling apart? “Today these decentralized markets are still small and not always at the enterprise level,” Borchardy told Cointelegraph, adding, “They will have significant challenges to deal with these volumes – at least in their current releases.”

Moreover, decentralized exchanges are not even fully decentralized and can be vulnerable to manipulation, as Zamiatin pointed out in a recent blog. The DEX manager account can upgrade contracts or stop operations, which means “we have.” [proverbial] A hedge fund just needs to contact the person / group controlling that account, apply some pressure or make a profitable bribe – and it could at least slow down trading. ”

Also, Ethereum, the platform that hosts most of DeFi’s projects, is not completely decentralized. Three mining pools control more than 50% of Ethereum’s hash rate, Zamyatin points out, and “we don’t really know who controls those pools in the background” if they have to collude. “We are still not completely present from a technical perspective, and market manipulation is still possible – yet it is arguably more difficult than central platforms,” Zamiatyn told Cointelegraph.

Moreover, since Ethereum houses most of the DeFi projects on the grid, the demand for transactions is high, so are the gas fees, and at some point, they may become very expensive and very quickly.

Short-term hysteria, long-term change?

The events of the past week may one day be seen as the moment of DeFi’s Boston Tea Party when American colonists disguised as an Indian Mohawk threw 342 boxes of tea in Boston harbor to protest British rule – an apparently irrational act. To him now as an introduction to the Americans. Revolution.

“We will remember this as another example of the short-term mass hysteria and FOMO dynamics that drove some assets into valuations that had nothing to do with the underlying core values ​​before returning to fairer prices,” Gagles notes, adding:

“We are undoubtedly entering an era in which more and more people are realizing the potential of decentralized, peer-to-peer, non-intermediary and censorship-resistant applications, particularly in the financial services industry.”

Burchardy agreed that a major move toward decentralized financing is underway now but added that two key points still need to be resolved to ensure future growth: “How can you make DeFi more convenient? And when and how is it organized? Answers to these questions will determine how DeFi progresses”.

Altogether, last week’s event may have split the cryptocurrency community, with no apparent clarity from generation to generation or retailer / institutional, but it can be said that it has alerted the larger investment public to some of the flaws of the current system – a kind of “teaching moment” of decentralized finance, as well. It was.

In any case, the blockchain and crypto community has to make sure its technologies, security, and protocols are right for the day the larger public rushes to use their markets.



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