The assertion by self-proclaimed Satoshi Nakamoto, Craig Wright, that Ethereum-based decentralized finance (defi) is a scam may not be entirely accurate, but it does contain a grain of truth. Even a stopped clock can be right twice a day, and in this particular instance, Wright touches on an issue which few – except the Ethereum founder himself – have dared to broach.
Defi Is a Plaything of the Rich and Careless
That would be the generally unspoken but well-known fact that defi simply isn’t useful for the average person. Much like the ICO craze of 2017 and its promise that tokenization would usher in a global change in the way customers and businesses interact, the implicit promise that defi will change the way people approach personal banking rings just as hollow.
First of all, the average person simply has no utility for flash loans, nor do they have access to the kind of disposable income that would make profitable yield farming a possibility. Surveys suggest 69% of American adults have less than $1,000 stored away in savings accounts, while 23% say they couldn’t muster $100 to spend in an emergency situation.
It’s not just defi that’s out of the reach for most people, but cryptocurrency investing in general. Taking $1,000 as a generous baseline, even a 10x gain on a lucky cryptocurrency pick is not going to radically alter a person’s life, assuming they’re fortunate enough to cash out during a market peak. The assumption that anyone but trust-fund millionaires and silicon valley elites are getting rich off the defi craze, which requires even more technical knowledge than vanilla cryptocurrency, is far-flung at best.
But then, whoever said cryptocurrency, or defi, was supposed to benefit the average person anyway? Satoshi Nakamoto’s original Bitcoin whitepaper leaned heavily on terms such as “peer-to-peer” and was centered around the notion of cutting out financial institutions as trusted middlemen.
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Combined with the news headline that was baked into the first Bitcoin block ever mined, this language gave cypherpunks and libertarians all the ammunition they needed to run with the narrative that cryptocurrency was here to free the common man. But, no explicit references to such a narrative exist in Bitcoin’s native documentation. Nor do any exist in defi.
Even if the possibility of freedom from mass enslavement was real, and people had savings in USD to multiply their earnings independent of financial institutions, then there’s the problem of how exactly one interacts with defi in the first place.
Ethereum founder Vitalik Buterin has already urged people not to be mindlessly drawn in by the latest hot new craze in crypto, and says that he himself has not engaged in any yield farming. According to Buterin, the space as it stands is unsustainable, and the amount of token-printing going on to compensate yield-farmers would make the Federal Reserve’s money printers blush.
“Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they’re all run by Ron Paul.”