Attitude towards DeFi: Cautious at present, promising future

In the comment section of the article from two days ago, a reader wrote this message:

“AAVE had such an incident, the entire DeFi and ETH will be re-priced and re-valued. DeFi now doesn’t even dare to touch it; it earns a bit of cabbage-like interest, while you’re carrying the mindset of selling white powder.”

I can fully understand this reader’s worry and disappointment about DeFi.

As for the knots in this reader’s mind, I’d like to share my view from another angle, as a reference.

My view isn’t entirely related to technology or the crypto ecosystem, but more directly connected to broader social phenomena.

Which social phenomena does it connect to more directly? It’s connected to how I look at open systems versus closed systems.

I remember in a previous online Q&A, I once used an example to answer a reader’s question. I said something like this (roughly):

If a system allows everyone to openly criticize it, openly accuse it, and even openly curse it and intentionally splash it with dirty water, then no matter how bad that system is, it won’t be that bad. And once a truly standout example appears within such a system, that example may be the peak that all systems find hard to surpass.

But if a system is one that the vast majority of people can’t figure out how it operates, and it can’t be openly criticized or openly accused, then even if the system is very good, it has an obvious ceiling you can see with the naked eye.

This viewpoint directly shaped my view of the entire crypto ecosystem, including DeFi.

So for DeFi systems that are open for code, open for rules, and even disclose vulnerabilities, I believe they can’t be too bad—and the future will definitely be bright. Because I believe that eventually, extraordinary projects will emerge, becoming the pinnacle of the ecosystem, and the pillars supporting the crypto world.

Even though the future is bright, the road will be unusually difficult and even winding.

The reason is simple:

Because it’s open—because it leaves nothing to hide. What’s more, it’s a huge honey pot brimming with wealth and fat profits, so everyone will use a magnifying glass to look for its problems, nitpick it over eggs, and even recklessly splash it with dirty water. Even if it’s not just to pick at flaws, but purely for self-interest, at every moment countless people are closely watching it, hoping it will expose a vulnerability so they can take a big bite of the loot.

Facing such “harassment” and such thorough scrutiny that cuts straight to the heart, few people can endure it, and even fewer projects can withstand it. That’s why the vast majority of projects in the DeFi ecosystem will ultimately become cannon fodder in the process of historical evolution, and will be swept without mercy into the trash heap by history.

But DeFi has one thing going for it: its platform, Ethereum, is an open, permissionless platform. As long as this platform exists, the seeds of innovation will surely keep being planted—surely there will be that very small number of genius individuals and genius teams who streak across the long sky of history, creating some extraordinarily powerful projects that will be recorded forever.

This is just like human history—one miracle after another in human history has always been created by a minority of geniuses and elites.

But in this process, even genius projects must go through rounds of brutal cleansing, and suffer setback after setback, crossing one life-and-death ordeal after another.

“The sharp sword comes forth from grinding, and the fragrance of plum blossoms comes from bitter cold”—that’s what this means.

And the DeFi ecosystem is a new ecosystem, still in its early stage of development, far from having gone through the ordeals it still needs to experience. So I’ve always been on guard against all kinds of major catastrophes they might face, which is why I’ve always been quite cautious in my use of DeFi.

I haven’t used CEXs in the crypto ecosystem for a long time; basically all of it depends on DeFi.

But I take a pretty conservative approach to DeFi operations:

In day-to-day operations, what I use the most is DEXs—but only for asset swaps. As for things like providing trading pairs/liquidity, I participate very little, because I’m worried that problems might arise there.

For lending-type applications, a few years ago I put a batch of assets into AAVE and MakerDAO, but the amounts were never large. And in the past two years, I haven’t put even a single cent into lending-type applications. The reason I do this is also because I’m worried that problems might arise.

In an online Q&A from the year before last—or even earlier—when Ethereum collateralization was very popular, a reader asked me whether I was doing Ethereum collateralization. My answer was yes, but not much. I wouldn’t do what some people do—taking all of their Ethereum and using it for collateral. The reason I do this is also because I worry that collateralized applications (like Lido) might run into problems.

When will I feel comfortable?

I think at least 10 more years are needed—wait until most of these applications have either died or declined into obscurity, and until the remaining ones have experienced enough disasters and trained strong enough “golden bell shields” to protect them. Only then might I consider using them more confidently.

Even Tang Seng’s journey to the West had to go through 81 hardships before he could attain the truth—how much more so for these uneven applications that have only just grown up in a new world?

So today’s AAVE incident, just like every past incident we’ve experienced, is the path the ecosystem has to take in order to grow robustly—to become a towering tree—and the lessons it must learn.

As for whether DeFi will be re-priced after this event, I believe that some individual projects may die and be ruthlessly eliminated, but those that survive will be stronger and healthier. As a whole, DeFi will go through a period of low tide—but when winter passes and spring comes, they will still be sunny and brilliant.

As for Ethereum, I’m even less worried. Decentralization and security have always been the bottom line that Vitalik and the core Ethereum team have firmly upheld. This incident also once again proves that Ethereum’s route and commitment are correct.