Is DeFi too crazy? Zhao Changpeng and Vitalik call for an end to speculation, advocating for the creation of lasting value.

In the recent cryptocurrency market, it has been dominated by individual shows in the DeFi sector. The governance token COMP of Compound led the trend, surpassing the long-time leader Maker in terms of token market value and protocol locked value. Balancer and Curve also quickly followed suit by launching their own governance tokens.

Vitalik Urges Caution on DeFi Speculation

Reflecting on Ethereum founder Vitalik Buterin's remarks on June 21st, he had already issued a warning about the fervor surrounding DeFi, repeatedly emphasizing systematic risks. He pointed out:

To be honest, I think we have emphasized these high-interest DeFi projects too much, these interest rates are much higher than what traditional finance can offer, and if it is not a short-term arbitrage opportunity, then there are undisclosed risks.

Yesterday evening (1st), Vitalik once again expressed his thoughts on the development of DeFi, stating that the truly valuable aspects of DeFi are likely to be the most boring:

Just giving anyone in the world a cryptocurrency with interest rates that keep up with inflation is already a big benefit. We already have something like that now, it's just about improving it.

Ideally, Vitalik believes that such things should be anticipated and meaningful. He cited examples such as lossless lottery PoolTogether, decentralized autonomous organizations DAOs, and decentralized autonomous token issuance DAICO.

He also hopes that more people will join in promoting valuable things, such as smart contract wallets, privacy technology, better stablecoins, and improving public goods fundraising.

Binance founder Changpeng Zhao CZ also responded below, agreeing with this view, stating that building long-term infrastructure is more substantial than fleeting extravagances.

Systemic Risks

Both Compound and Balancer have attracted a large amount of funds, with speculative elements far outweighing actual borrowing demand, making it an opportunity for hackers familiar with code vulnerabilities. Compound has proposed changes to distribute COMP based on "borrowing asset scale" to avoid extreme market lending rates; while Balancer, which was previously exploited for leveraged token utilization, has urgently implemented a "token whitelist."

So, what exactly are the systemic risks that Vitalik keeps warning about? The most famous example is, of course, the 2008 financial crisis, when the subprime mortgage crisis erupted, causing financial institutions in Europe and the United States to fall into financial crises one after another, triggering a global systemic risk. This kind of systemic risk is difficult to estimate, and it is challenging to accurately calculate its overall risk situation.

Moreover, lending itself carries high risks, such as the "Black Thursday" crash on March 12th this year, when MakerDAO's liquidation mechanism failed to operate as expected, resulting in a total loss of up to 5 million US dollars. Although MakerDAO survived the pressure test at that time, facing the current frenzy of liquidity mining, even Vitalik cannot determine where the risks will be, and whether there will be unexpected risk vulnerabilities in the future, still causing concerns.