Crypto networks that were part of the decentralized finance (DeFi) world and had pledged of giving users all the control have now changed their approach. They have now taken charge themselves, as their aim is to get through the worsening crisis that has gripped the digital asset market.
Decentralized Finance is in Trouble
In the last week alone, three projects in the DeFi space had to step in with emergency plans for protecting their platforms and their clients from suffering from monetary pain, as crypto prices tumble. These three platforms were Bancor, MakerDAO, and Solend, which are quite prominent in their own right, as far as the decentralized finance universe is concerned.
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The goal of DeFi is to develop an alternate financial system that does not have a centralized authority. However, recent months have seen the space lose almost 70% of its market value, which is around $2 trillion, and this has kicked those decentralized finance dreams rather sharply.
Market analysts said that most of the entrepreneurs had not expected this to happen. It only highlights the fact that most of the decentralized talk in the crypto space is just aspirational at best and false marketing at worst.
Three DeFi Projects Suffer
A lending platform operating on the Solana blockchain, Solendproposed last weekend to take control of its biggest user’s wallet. The operators were concerned that if the price of the Solana token declined to $22.30, it could threaten the economics of the platform. The price had already fallen to $27. The platform warned that the Solana protocol was at risk because of the large margin position of the wallet.
The criticism from users had the company withdraw its plans, but Solana said that it was committed to ensuring transparency, protecting its users’ funds and doing the right thing. As for Bancor, the project paused a service aimed at protecting users’ tokens from big market swings temporarily, citing the hostile conditions of the market.As for MakerDAO, which is behind the Dai stablecoin, voted for freezing a link to AAVE, as it is exposed to another lending platform Celsius, which is struggling.
Global Regulators Question DeFi
These emergency plans did catch the eye of global regulators, as they warned that some of the projects that are part of the decentralized finance (DeFi) ecosystem are actually more centralized than they advertise.
This week, the Bank of International Settlements (BIS) also released a report that questioned whether it would be possible for these DeFi projects to ever become a part of a monetary system because every market move could not be predicted by the developers. It said that central authorities would be needed for resolving disputes because it is not possible to write contracts to highlight what actions to take in all contingencies.
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While regulators are issuing their warnings about DeFi, people are making up their own mind. Some enthusiasts who had not been fully committed to the ethos of decentralized finance have stepped away after the actions of these protocols.