DeFi Deserves Its Huge Crash

Has decentralized finance met its maker? At least one industry insider thinks so. Tim Frost, founder and CEO of Yield App, says “the total market capitalization of the decentralized finance (DeFi) sector is down an astonishing 27% to $127 billion from its all-time high of $173.7 billion in November last year.” (BlockTelegraph verified Tim’s numbers through data-aggregator, CoinGecko.) 

This is a huge tumble that has wiped out nearly a third of the value of what we all hoped would be the brightest-shining light in the future of finance. DeFi promised us so much, according to Frost. First, that it would open up wealth creation opportunities to the masses, making available the kind of yields on stable assets that had not been seen in traditional finance for decades. Second, that it was going to create a free and fair financial system unencumbered by the many barriers people face in traditional finance.

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Tim Frost, founder and CEO of Yield App

Since those idealistic days of early 2020, however, DeFi has been beset by hackers exploiting millions of dollars from protocols built on hastily constructed smart contracts, while the mind-boggling complexity that characterized many early DeFi platforms has not been simplified and streamlined by enough providers in the industry to make it an attractive prospect to mainstream savers and investors. 

In addition, many corners of the industry continue to resist regulation, setting up a very dangerous adversarial situation that is hindering growth. Of course, that’s not the same for all corners of the industry. There are some conscientious leaders in the space doing some incredible work, including the Global Digital Finance council, which is reaching out and connecting decentralized and traditional financial thought leaders and decision-makers. 

Nonetheless, DeFi has to really up its game if it is going to win back the many people that have left it and, more importantly, convince the mainstream customers it so desperately needs to come forward and trust the sector enough to place their hard-earned money in it.

As we all buckle-in for what is looking like a 2018-esque crypto winter this year, this could be an ideal opportunity for many in the DeFi industry to take stock and think carefully about the next phase of growth and development in the sector.” 

Frost shared other thoughts on the industry. The irony is not lost on us at BlockTelegraph that Tim Frost would have something to say about the current “crypto Winter.”

On Bitcoin adoption, Robin Hood will move the needle more than Mexico. Mexican senator Indira Kempis Martinez announced at Bitcoin 2022 in Miami that Mexico is considering making Bitcoin legal tender. If passed, Mexico will be the first North American country to adopt Bitcoin as legal tender. This is not big news. The only thing that will really move the needle on bitcoin in North America is a spot ETP, and the SEC isn’t budging.

Indeed, Robin Hood’s announcement that it will open up crypto to two million people on its waitlist is much bigger news. This will drive crypto adoption far, far more than Mexico or El Salvador. But Frost doesn’t think Robin Hood is really interested in serving its crypto-hungry users. As many industry observers have noted, the new wallets will not host ERC-20 tokens, where all the best opportunities in crypto lie.

Frost calls it a “cynical, money-grabbing move by a company that showed how it really feels about its customers during the Gamestop scandal.” He added: “Then, and now, Robin Hood has no real interest in providing its customers with access to genuine wealth creation opportunities.”

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