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Pan chao: DeFi on decentralized and centralized seesaw

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The DeFi and CeFi on both ends of the seesaw are not in conflict with each other in financial activities, but are equally necessary to each other, and it is this necessity that forms the financial balance.

Original title: DeFi on the seesaw
Source: Moneyness institute author: pan chao

Like most blockchain nouns, DeFi is a trendy, high-sounding marketing slogan rather than an accurate description of things. The slogan turned financial de-centralisation into a result that had already been achieved, rather than a process itself. Therefore, it is not difficult to understand the misunderstanding, ambiguity and polarization caused by DeFi.

"When we are talking about decentralized financial, tend to decentralization chain (blocks) as the main body, and then discuss and design the application and agreement of financial attributes. But a more comprehensive and systematic understanding of decentralized financial, I tend to finance as the main body, think about what areas can achieve decentralization and what benefits... distributed is not exclusive to block chain, transparency, resistance to review and modification for the financial industry is more difficult to compatible. The core and advantage of decentralized financial without permission. Don't need permission to have three levels: Developers without permission, without permission of charge to an account and user without permission, the corresponding source code, the chain of public and open account... just can satisfy the user without permission of the financial project belongs to the category of decentralized financial, and developers as well as the general need to charge to an account without permission in the efficiency, safety and the decentralized trade-offs."

-- theory and practice of DeFi

The tradeoff is a delicate thing.

Which is more decentralized, Dai's ethereum network or the ethereum network with the USDT? The answer is: pure ethereum. From an asset custody perspective, yes. But what if we measure it in terms of licensing? Even more so is the no-holds-barred network of centralised collateral. The asset hosting attribute does not determine the degree of DeFi decentralization and policy recommendations.

An open public chain cannot restrict the issuance of assets on its chain. In abstract theory, it is always a good thing to carry more assets. In practice, however, if an asset is primarily used for grey and highly leveraged trading, the more open the public chain is, the more risks and pitfalls it creates. The USDT virus-like prevalence and resource usage are the reasons behind the unprecedented increase in fees on the ethereum network that paralyzed financial applications as the 312 market fluctuated. This is a "tragedy of the Commons" and a lack of systemic governance. Not only the financial application, but also the public chain itself, especially in the early stage, should be selective and controlled.

And who chooses the management protocol and who responds to the crisis are two sides of the same coin. The administrator has the authority to make changes to the system, the risk is spread by the user, and this is a balance sheet that will never be balanced. User feedback and signal gathering can help the system reduce biases, and ultimately decision making needs to be firmly in the hands of managers, whether through super rights or token votes, but the community (or users) should not be left holding the bag when a crisis occurs.

I don't know what the ultimate form of DeFi is. "The bud disappears when the flower opens, and people say that the bud is negated by the flower. At the time of fruit, the flower is seen as a false form of the plant, and the fruit is said to be the true form of the plant instead of the flower." Pursuing "true DeFi" is like treating a single fruit as the plant's whole.

Decentralisation and centralisation represent two very different forces and ideas, like DeFi and CeFi on both ends of the seesaw. They are incompatible, but the liquidity between them makes them financial. These links are not mutually exclusive in financial activities, but are equally necessary to each other, and it is this necessity that forms the financial balance.

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