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This not true at all. The only advantage over traditional finance is the ability to evade capital and ordinary income tax.
Umm… 24hr markets, self-custody, higher yield on stable coins vs USD savings accounts, instant transaction settlement.
DeFi is laying the backbone for what could be a much more efficient financial market compared to traditional markets.
I see the two merging with trad fi using blockchain as a settlement layer for trading bonds and equities.
Umm..Rug pulls, holding periods that go against what defi stands for, absolutely no regulation, consistent and frequent hacking, NO return of principle, NO assets backing your holding, only a handful of nameless "keyholders" controlling the coins, no guaranteed longevity of the coins, no guaranteed dividends, a hyper volatile asset eating through any yield, inflated advertised APY vs the actual, massive and ridiculous fees to move assets, closer and encroaching bureaucracy ...
The list goes on
If you want to justify all this and more for petty aspects like 24 hour markets then that's your business. Good luck
I am having trouble understanding the crux of your argument. DeFi is certainly a work in progress, but I’ll try to give my thoughts on each of your points. I apologize if I miss any.
The current model of token rewards to incentivize early adoption and liquidity is definitely not sustainable. It does bring cause some of the issues you mentioned
-Inflated APY projections. -rewards in a volatile inflationary token.
I think the token reward model is always intended as a short term incentive for bringing liquidity into a system. I don’t think it is a great solution in part for the reasons you mention, but also because it just leads to people moving to the next project once rewards end.
In terms of your other points; the “massive and ridiculous fees” are cause by the price of gas being bid up by traffic on a particular block chain. DeFi as a concept exists on chains other than Ethereum where fees are much lower including Ethereum L2s and other L1 chains. That’s a problem with todays state of blockchain technology and not specifically DeFi.
No “asset” backing a holding sounds like a complaint against crypto itself. There is also no asset backing the US Dollar itself either. It is backed by the government and economy that issues it. Traditional equities trade at many times the assets or profit that back them.
The backing of any given coin or token is the utility it brings for L1 coins on a smart contract chain that is their use as gas to fund transactions. For project governance tokens that is their use on voting on decisions or any other benefits said governing body decides on. Quick tokens on the QuickSwap protocol for example are used in governance votes and staked to earn a percent of fees the DEX takes in for exchanges. You are holding a token that is backed by voting rights and a portion of the protocols generated fees.
I am going to bunch “no return of principal”, “no guaranteed longevity of the coins”, and “no guaranteed dividends” together because these are things that also do not exist in traditional equities markets. Guarantees like these don’t existing in regulated traditional markets, so I don’t know why there would be an assumption that they should exist in a DeFi market.
Hacking is an issue in our digital world. DeFi has room to grow in protecting agains losses due to hacking, but traditional finance is also not immune to hacking. CyberSecurity is a real issue that will continue to grow as our society becomes more digitized. DeFi is not uniquely susceptible.
Some of your complaints have legs and I think DeFi has a long way to, go but that doesn’t mean it doesn’t have promise and can’t revolutionize the global financial markets. It can and I think it will.
I don’t see the benefits of DeFi as petty.
Access to a global market for those everywhere in the world. I’m privileged to live in a country with access to equity markets, not everyone is.
Access to a permission-less financial system. Not everyone in the world lives under benevolent governments that value economic, religious, social, and political freedom.
24 hour markets with instant and trust-less settlement. International markets are traditionally very slow due to settlement times. DeFi doesn’t have these problems.
Self-custody of financial assets. Banks and DeFi started on a collision course to merge into one before DeFi even started. Banks at this point are largely just private ledgers maintaining records of client account balances and providing financial services. Blockchain and DeFi can do this more efficiently and as or more securely.
In the US we have had relative stability for a period of time, but that is not a global certainty either. Nationalization of banks and seizure of assets has happened repeatedly throughout the world in the past. Self-custody of assets in crypto and DeFi can help prevent it.
When you immediately relist it for more yes it is
But the entire transaction history is visible. It’s highly speculative all around, but I don’t see that as fraud.
Plenty of fraud is traceable, doesn't make misrepresenting interest in your product any less fraudulent.
If an artist were to buy from different wallets or identities to inflate prices and deceive people into think there was more interest than there is, that to me would be fraud.
To be fair there is probably plenty of that as well.
I’m just not willing to paint any time a creator buys their own NFTs as fraud.
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That challenge would be in assigning value to an art/collectible NFT as collateral. I could see a lot of liquidations happening. I would never want to borrow against something with such extreme volatility.
Now if we’re talking about NFTs that are digital titles for physical assets; that’s a different ball game.
0x533A673b31DCB38214c86d71FB6E5C81ded7B217
Because of Apple.
I've been thinking a lot about this subject lately after some comments I received on here about how crypto currencies would be unfit to serve as currency due to their deflationary tendencies and increasing values.
While I certainly agree that volatility and transaction costs are certainly a barrier to adoption of any crypto as a usable currency I question the current world banking systems philosophy that a steady rate of inflation is necessary.
Inflation and low interest rates are certainly responsible for fueling a lot of growth, but I am just not convinced that it is entirely necessary. In my current line of thinking a currency without constant inflation would slowly gain in value a sort of built in savings mechanism whereby the relative value of wealth held would increase.
I'm including some of the reading I've done and am interested to hear others thoughts.
https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp
https://www.investopedia.com/articles/markets/111715/can-deflation-be-good.asp
https://www.brookings.edu/opinions/5-reasons-to-worry-about-deflation/
I like that you think about this 👍 For that kind of thinking you need to simplify a lot to understand what's going on. Let's assume you have a country A with a lot of participants P. You need to have some sort of currency in order to exchange goods. If you don't have a currency then youre left with barter trade which is not good if you have goods that won't last a couple of days/weeks/months/years. Hence, having a currency enables store of value. This is where a currency comes to shine. A country mints coins such that everyone can trade their goods and store their value. So far we have a country that issues money such that people can trade, but we didn't clarify how the money went into the system, how the people got money to exchange. Now we can introduce debt. Someone takes a loan and gets money such that he can trade. ... Fast forward, no there's money (money supply) in the game. And there's a velocity of money. It depends on how often money changes hands. Then, there is the amount of transactions that are happening in the market and a price niveau for all traded goods. If money supply increases the equilibrium does not hold anymore. Hence, prices must increase, velocity decreases or transactions must increase. This is known as equation of exchange. If money supply decreases, the money itself gains in value. If you can't spend 100 money for an egg, because there's less money supply and you can only spend 90 money, then money increased relatively compared to eggs. Now, let's assume eggs are a whole basket full of goods and money increases in value over one period (can be compared to less money supply) then it would be beneficial to a trader to wait for one period in order to spend less on the goods basket. Vice versa. It would be nice if prices would always be the same, but right now we can't achieve that. The costs of an egg (or the basket) will always very due to innovation and other factors. But what we can control is money supply and hence the initiative to trade. if the value of money is increasing, you want to keep your money for yourself. Hence, we create the incentive for an agent in this game to trade. If value of money is decreasing, you don't want to keep your money. It would be perfect if it would be stable, but we can't achieve that because we have innovation and other uncertainties in the market. In times of a pandemic where the government shuts down economic activity, money supply stays the same but the velocity of money and amount of transactions decrease. That's why you print money such that the market is kept in equilibrium. There's no inflation in prices because velocity and transactions went down. As soon as velocity and transactions increase, you need to lower the amount of money again, otherwise you create inflation. You do not need inflation for a working economy, inflation can harm the economy, but you want to hinder deflation. If you keep inflation at 2% (arbitrarily chosen) you have enough scope such that deflation can't occur. If something is unclear, or I didn't explain it in detail enough, or you have follow up questions, feel free to ask 👍
The solid block of text is hard to read, but thank you for the thorough and thoughtful reply.
Because this is about crypto... It does not matter where the money comes from, whether it's from a central bank through debt, or by mining, or whatever, it's important that you have money. If you have a deflationary money system (bitcoin) it might be more profitable to keep to the bitcoins and not spend them. If it was inflationary, you would want to spend them. That's why most coins are deflationary and by staking you reduce the active supply on the market to make it more valuable, even though it actually isn't more valuable, because there's no value behind it. If bitcoin is another currency in our predefined world, why should you spend it, if it's value increases over time? It's better to hodl and cash out afterwards.
That has always been the argument against deflationary monetary policy. It encourages saving rather than spend it which slows down the velocity of money in the system.
Some of the links I shared talk about this, but spending will not stop because of idle money increases in value. It would have a slowing effect, but that could actually prove more stable over time.
I already consider the potential growth of money through investment as an alternative to spending it and yet I still spend money. Sometimes because the item is a necessity that can’t be delayed; food, water, shelter, etc but other times it is simply because I have decided the benefits of the purchase outweigh the incentive to save and invest it; a new car, concert tickets, vacation, etc.
I’m just starting to question the conventional wisdom that a stable deflationary currency would be destructive to the economy and this is a common argument I hear agains crypto taking on a currency role.
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