Here comes the DeFi madness: How is it going to end? Will the events of 2017 happen again?
“The form has changed, but the content has remained the same. The goal is still short-term gain…”
Over the past months, we have started to hear more and more about newly launched DeFi projects with an objective to reform our current financial system. Obviously, Bitcoin’s decentralization and Ethereum’s smart contract system, alone, provide the basis for a new type of approach; the advantages and disadvantages of which we have been experiencing for years.
The new projects, however, are promising way more than that. They promise that without any sort of intermediaries, lawyers, banks and public institutions, a relationship of interest would develop directly between one person and another that ensures the absolute interests of both parties. Needless to say, smart contracts will be indispensable for this. The question is, ‘what type of smart contracts?’ Because we all know what smart contracts are used for, but only a few people are aware of how difficult it is for these smart contracts to also meet specific needs.
They promise bridges between cryptocurrencies; bridges that can transform the crypto-market into unity. There is talk about trading with no losses, anonymity, and cooperation without third parties. Frankly, there are valuable elements amongst these promises, and some of them might even be reasonable and realistic. The only question is, ‘out of the many hundreds of new projects that have recently been launched, how many of them will actually be able to produce something of real value?’ If I had to guess, I would say just a few!
Let’s take a look at the promises of Ethereum, Cardano, Tran or EOS. We’re talking about years since these promises were made, and they have not been able to achieve any of them. None of them were able to solve the scalability problem. In recent years, only ILCOIN has been able to achieve a real breakthrough in the scalability problem thanks to the RIFT Protocol. I am not trying to suggest that the above-mentioned projects are faulty; what I do say, however, is that the technological challenges associated with the blockchain are much more complicated than ordinary people think.
That’s why I would like to clarify that perhaps it is only the smaller concern of how easy or difficult it is for a smart contract to be specified. What is a more significant issue — and the subject matter of this entire writing — is what sort of value those exceptionally popular, very rapidly advancing projects carry. How much is a project that can produce a thousand-fold price increase within a month without any sort of technological innovation really worth?
How is this whole madness going to end? I believe the fact speaks for itself that these projects are not able to significantly make the market move. This means that stronger altcoins, fortunately, are still dependent on the movement of Bitcoin. Those projects that raise the price by trading smartly with a low token number and high volume will obviously be able to generate huge profits in the short-run. Personally, I don’t believe that quick miracles can last. Let’s just think about the fact that every large technology company needed years or even decades to become market leaders.
I am inclined to believe that these projects — I purposely refrain from naming them — will cause tremendous losses for many thousands of people. Of course, many people can earn large amounts in the short-run. However, a large percentage of these projects will never have superior technology. All of these projects are about short-term gains; about results which do not have any value. If you read the articles about the subject, it is clear that I am not the only one with this opinion. Experienced crypto-people who lived through the ICO-bubble of 2017, saw Bitcoin’s price falling from USD 20,000 to 3,000, or bought Ripple for 2–3 dollar that is worth USD 0.30 now are all aware that there are no miracles in the long-run.
That is why I would warn everyone against taking part in the DeFi-bubble projects of 2020. Granted, if someone steps in at the right time, they can gain a lot with these projects. However, this short-term profit will be very costly in the long-run. As I have written above, what’s important to me is the fact that these projects still do not make Bitcoin or the other stronger altcoins move. It is important because I would not want the crypto-market to experience another negative wave as it did back in 2018.
As I have elaborated on the matter in my previous writing, those crypto-projects that possess technological innovations similar to C2P or the RIFT Protocol are valuable for me. Obviously, the expenses that come with these projects will be much higher than the cost of a token that becomes automatically integrated both by wallets and exchanges as well. A token is a money tool that is credible until the real value behind that token is present. Unfortunately, the value for most projects is nothing more than an enticing White Paper. In this regard, we have not learned a lot from 2017.