Thoughts and Opinions #1/ DApps, DeFi, Devs
My thoughts on the drama surrounding the Godfather of DeFi.
Woah woah woah. Awesome alliteration in the title. Sounds like a bunch of buzzwords thrown together to make the post seem cool and fancy. Before I get into the drama on Crypto Twitter (CT) that inspired this post, lets break these terms down. Feel free to skip to the last section if you just want my thoughts on the drama.
DApps1 - Decentralized Applications
DeFi - Decentralized Finance
Devs - Developers
Dapps - Decentralized Applications
From Wikipedia,
A decentralised application is an application that can operate autonomously, typically through the use of smart contracts, that runs on a decentralized computing, blockchain system. Like traditional applications, DApps provide some function or utility to its users.
Wait lets read that again. Autonomously. Smart Contracts. Blockchain. 🤯. Is this the future? Lots of big techy words used. Well here’s a simple analogy to explain what DApps intend to achieve.
Say you wanted to place a bet on your favorite soccer team during a soccer game. You would have to go to a broker to place your bets, and the broker would tell you the odds, you would pay the broker, and if you won, the broker would then distribute your winnings to you. Sounds pretty straightforward right? Why would we need DApps for this? Along this whole process, the trust is placed in the broker to 1. release the correct odds to you 2. honor the given odds 3. actually distribute your winnings to you. It goes without saying that there are bad actors/brokers who can abuse this trust. With DApps, we can automate this whole process using code on the blockchain.
The core difference between a DApp on the blockchain and any other app hosted on any server is that the trust to execute the logic is given to the blockchain. The blockchain is immutable, meaning that once this particular set of code logic is uploaded, it cannot be changed. On the flipside, an application hosted on a server can be changed by the owner of the server on their own terms.
To summarize, DApps shine in cases where there is a required trust layer between two parties. Creating a DApp for this trust layer allows two users to transact and interact with each other without the need of an external middleman, with the logic assured by code executed on the blockchain.
DeFi - Decentralized Finance
Again, from Wikipedia,
Decentralized finance offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain.
DeFi is an genre of DApps, well obviously pertaining to finance. Say you wanted to lend someone some sum of money, but you require some sort of collateral. There are DeFi protocols that allow you to do so while earning interest. Or you wanted to buy something, but you needed a middle layer to facilitate the exchange with the seller. There are different DeFi protocols for each use case. Just to name a few: Uniswap for buying/selling coins. Aave for lending and borrowing.
Edit: Just as I was writing this, I saw this tweet below where apparently the London Metal Exchange was going to cancel all executed nickel trades. Imagine you were up 50% on nickel and you hear that your trades would be cancelled. How livid would you be? While this can happen in DeFi, it would require a majority consensus from governance to roll back the blockchain. Needless to say, the chance of a blockchain rollback is negligible and would certainly would not be approved by the community.
Devs - Developers
Lastly, developers are the people who do the code and build. There is a slight distinction I would like to make. Developers are not necessarily innovators. Think of developers as the people who lay the bricks and mortar of a house. In the same way, they express logic in the form of code which will be executed by the blockchain. On the other hand, innovators try to change things up; they provide the big picture idea. Innovators and developers are not definitely mutually exclusive, but being able to do both well is rare to say the least.
Decentralization
So what does it really mean by decentralization? Currently the term has kind of evolved to be kind of nuanced, but in its most pristine form it means:
Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group.
Essentially, instead of a single person/organization having all the power, you spread the power out between multiple entities.
It seems like for DApps and DeFi to even exist, Devs are a crucial component of the recipe. But you might be wondering - how can an application really be decentralized when there are only a select group developers building and working on an app? In my opinion, there are several main components to this:
Decentralization by authority (who can control the protocol)
Decentralization by execution (who can execute the dapp)
Decentralization by influence (who are the figureheads)
There are more than these types of decentralization, but I thought these were the most relevant in crypto.
Decentralization by authority
The name is kind of self-explanatory. Say I wanted to create an DApp. I, as the sole developer, would have control over the DApp source code and parameters. For instance, if I wanted to change the trading fee of my protocol and set it to 0 fees, i could. However, for obvious reasons, the crypto community frowns on a single person having the full control of any DApp. Measures like multisigs, timelocks are usually used to dilute the impact of any single actor’s actions. I would say these measures, while somewhat useful, still have some room for improvement.
Decentralization by execution
This refers to the blockchain protocol itself and does not take into account market forces. The logic of the DApp is delegated to the blockchain to execute. The blockchain’s consensus algorithm ensures the logic, which contained in a smart contract, is executed as intended. This kind of decentralization, in my opinion, is by the far the best advantage any proponent of crypto should articulate to outsiders. A DApp deployed on the blockchain has its logic set in stone, and nobody can ever change its logic (unless proxied). If the SEC were to ban all crypto tomorrow, I don’t need to worry about Uniswap (based in NYC) not working, since the Ethereum blockchain will still execute its smart contract. Well unless Ethereum stops working totally, but that’s kind of a doomsday scenario.
Decentralization by influence
This is arguably, the worst limitation of crypto. No matter how good a security system is, the point of failure usually still lies with humans. In crypto, as much as we preach decentralization, we look to a single point/entity of power for direction and to run things. In each major projects, there are often several prominent figureheads. For instance, Satoshi Nakamoto for Bitcoin, Vitalik Buterin for Ethereum, Do Kwon for Terra, etc etc. The only successful transition to decentralization by influence would be Satoshi, since he all but disappeared 10 years ago and Bitcoin is still well and alive today. Ethereum has done a pretty good job of diffusing Vitalik’s influence to the Ethereum foundation and has attracted sufficient independent contributors to its protocols. If Do Kwon left Terra right now, would I have the confidence to say Terra would still be a thing 5 years down the road? Definitely not. Diffusing influence is extremely hard thing, and when influential figures leave suddenly, there is a gaping hole left unfilled with investors having to pay the price.
One major complaint I often hear on CT is that DeFi isn’t really decentralized. It is important to distinguish and separate the price action of the protocol’s token, and the actual tech behind the token. Uniswap’s token price could dump to 0 today, but the DApp itself would not stop working since its logic is immutable and lives on on the Ethereum blockchain. There are however varying degrees of decentralization of the blockchain (such Fantom), but that’s less to do with the DApp itself, but a critique on the blockchain infrastructure.
Drama 🍿
It wouldn’t be a day on CT if there weren’t some new drama. Andre Cronje, nicknamed the Godfather of Defi, decided to call it quits after 2-3 years of building in DeFi. Andre Cronje was the pioneer of many successful DeFi Dapps, such as yearn.finance, curve bribes and many more. He is regarded to the one of the most influential people who had contributed loads to the current DeFi landscape.
Just a month before, he had significantly contributed to a huge boost of assets inflows into the Fantom Ecosystem by creating an airdrop of his new Dapp token, Solidly, to the Top 20 TVL of existing DApps on Fantoms. Based on his track record with deploying DeFi Dapps, Solidly is an Automated Market Maker (AMM, ie an exchange for you to buy and sell tokens) generally expected to be another money making opportunity.
Yet it wasn’t. Within deployment, users reported bugs on the exchange, token emissions were too fast, website UX not pleasant, yada yada. What was thought to be revolutionary sorely failed to live up to the hype. The constant FUD and complaints from the community clearly got to Andre. While it wasn’t his first rodeo dealing with angry investors (see here), solidly was the final straw that broke the camel’s back. With that, Andre waved the white flag by Anton’s proxy.
Big money starting leaving the Fantom Ecosystem. This wasn’t just any price drop. The impact of Andre leaving impacted all of Fantom, even DApps which had nothing to do with Solidly. Seasoned working projects like Yearn.Finance, which Andre had already handed over to the open source crypto community in 2020, had its token price plummeting close to 20% on the announcement.
The token who took the hardest hit was Solidly’s token, $SOLID, which is down 95% from all time high at this point of writing. Investors hoping to strike it rich off Andre’s latest financial experiments instead found themselves scrambling to salvage any remaining capital.
Conspiracy theories starting springing out post mortem that it was an elaborate plan for Andre’s exit liquidity. Personally I feel that Andre was just suffering from a case of severe burnout. Do I think Andre had any malicious intent? From what I know of him, no. This was just an unfortunate case of bad events lining up at the same time. Did Andre profit from his token? I would wager yes. He was already financially secure from his previous successful DApps, it wouldn’t really make sense to go to all the trouble to build a DApp just to scam people out of their money. At the core of it all, I believe Andre was just a man trying to contribute to DeFi and build a better financial system.
This incident serves as a pretty good example to show how much havoc a protocol with a lack of decentralization of influence can wreck. While Solidly seems to have been handed over to other major players, the depreciating price of $SOLID has left a foul taste in many investors’ mouth. It is crucial to recognize that there are many moving parts and components to consider when choosing to make an investment into a DApp. In crypto, the tech is just one of the many facets that can cause a token to perform horrendously. Again, it is important to distinguish and separate the price action of the protocol’s token, and the actual tech behind the token.
People like Andre constantly have that itch to innovate and build. I am sure that Andre one day will be back, perhaps as an anon. Till then, it would be good to hold this expensive lesson in mind.
I personally really dislike how the word ‘DApps’ looks and sounds like. and the constant red underline from the spell checker isn’t really helping. But this is just me being ridiculous.