DeFi should take the middle road

An Incumbent’s $1 Billion Fine

Corruption is a human trait. We can’t help ourselves. Insiders pursue insider trading. Market makers turn into market fixers. Dealers get caught self-dealing. It is hard to ask for more from our DNA and lizard brain, wrapping dopamine hits around our self interest. And yet, evolution has shepherded the Homo Sapien ahead of all other primates and apex predators through the ability to socially cooperate on a massive scale. This advantage looks down at our base needs, and attempts to weed them out through enforced shared agreements (i.e., the law).

The Temptation of Anarchy

DeFi is the BitTorrent of finance. And it is having its moment in the anarchic, decentralized world of the financial Internet. It doesn’t hurt to show the metrics again, with $12 billion now powering many of the asset classes we normally only see behind closed doors at the investment banks. Anyone, anywhere can have a taste of levered up derivatives. You can launch tokens and assets on Uniswap, straight to the Twitter-native crypto generation. You can slice and dice exposure, and bundle and re-bundle synthetic capital. Nothing is sacred.

The Paths to the Wrong and Right Equilibria

It is easy and natural to fall into the gaping maw of the Internet. To push around edgy memes, hallucinating that this gives you more power than the US Federal Reserve.

Final Takeaway

Some readers will take our position apart as compromising the values of the decentralized web. Others will see the need for regulation as obvious, and seek even more oversight. Both are somewhat beside the point. The crux of the story is that a middle road for DeFi will allow it to blossom into the next generation of the financial industry.

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Lex Sokolin

Lex Sokolin

754 Followers

Entrepreneur building next-gen financial services @Consensys @Autonofintech @Advisorengine, JD/MBA @columbia_biz, editor and artist @inkbrick