Central Banks and Sushi 🏦🍣 | TradFi to DeFi Weekly Wrap Up
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DeFi on a (Sushi) Roll?
We can’t talk about DeFi without discussing the pervading question in the industry: does the line go up or down? John served as a fantastic host for this week’s wrap-up call, kicking things off with this classic inquiry on price action. Adam shrugged off the short-term price movements, citing underlying industry fundamentals as the most powerful long-term driver for adoption. The community largely echoed this sentiment — when DeFi companies start offering 4% yields, a coupon representing over 200% greater returns when compared to US treasuries, financial professionals start taking things seriously. Subsequently, most traditional financial professionals have taken a buy-and-hold approach to the DeFi industry. Grace stated her satisfaction with the current Grayscale discounts, bringing to mind an old Rothschild quote to “buy when there’s blood in the streets.”
As the conversation excavated new friendships and discount assets, the tone shifted towards speculation regarding recent news and the quality of these various discounted DeFi assets. While Adam recently increased his SUSHI position, Grace inquired if past opaque activity gave him pause for concern. After all, SushiSwap’s meteoric rise to the top ranks of DeFi resulted from an arguably shady tactic that vacuumed up liquidity from existing protocols. By leveraging a thoughtful array of incentives known as a Vampire Attack, SushiSwap successfully attracted over $1 billion in locked liquidity in just under a week, representing record-shattering capital inflows for the industry. While not objectively dubious, how SushiSwap attracted their initial liquidity remains firmly in the realm of foul play for some industry participants.
But the controversy doesn’t stop there for SushiSwap. Recall that the original creator of the new blockbuster exchange once liquidated $14 million worth of SUSHI tokens from the development fund, prompting a serious price crash and shaking confidence in the project. Ultimately, Chef Nomi returned the funds with an apology. However, its creator’s potentially dubious origin story and actions make for a fascinating story and perhaps intentionally curated, Elon-esque “bad boy” image. Now one of the most popular automated market-making protocols, boasting over $2.5 billion in total value locked, SushiSwap remains a strong force in the DeFi industry. Despite the controversies, it isn’t going away any time soon.
Let’s Talk Fed
After debating the past and future of DeFi market makers, Matt brought up an excellent topic that reminds us of the growing disconnect between the Federal Reserve and the public. Fed Chair Powell recently stated that, should the Fed release a functional CBDC in the United States, that Bitcoin would largely become obsolete. You heard it here first: we can throw out that dusty old decentralized, peer-to-peer network that we’ve been using as a global, pseudonymous payment solution. Thankfully, the same entity that brought us record-breaking levels of wealth inequality, infinite quantitative easing, and (a crowd favorite) the 2008 financial crisis has decided to innovate on the technology!
Despite the clear satire in the above paragraph, Powell’s statement reveals a serious disconnect from reality. Retail investors have survived despite the Fed’s monetary policy while Wall Street has thrived. The first block ever mined on the Bitcoin network contains the phrase: “The Time 03/Jan/2009 Chancellor on brink of second bailout for banks.” This brief message left by Bitcoin’s anonymous creator offers a visionary glimpse into the spirit that defines crypto and the DeFi movement. The belief that unfettered financial innovation remains intrinsically inclusive due to the lack of barriers to entry incited the rise of DeFi and has so far empowered individuals and institutions with the ability to truly customize their exposure to markets absent harmful central bank activity. John hit the nail on the head in stating, “I’d rather bet on DeFi than the Fed or corporate paper.”
Check, One Two, Check
After touching on relevant and engaging topics from all across the DeFi and TradFi industries, we opened up the topic selection process to everyone. After all, DeFi entails decentralized governance, and every voice counts! Ray poised an interesting question regarding node validators and their functionality. Solana entered the crosshairs with speculation regarding how they handle transaction processing. While yet unseen, should the potential for an allegedly decentralized network to pause its activity, in turn, give potential users pause for concern?
Daniel’s rich industry experience offered some fantastic insights regarding the nitty-gritty of what we mean when we say “validator” and the topsy-turvy nature of word games. For starters, much of the talk surrounding consensus exists as a marketing ploy, allowing new blockchain networks to differentiate themselves in the minds of potential investors and developers. Additionally, much of the talk regarding consensus deals with classical consensus. As Daniel clarified for the group, this is only part of moving a blockchain network forward. What some networks call nodes are centralized clusters of machines, while other networks consider any machine which is broadcasting a transaction via the network a valid node. These fantastic insights represent the immense value available in the diverse TradFi to DeFi community. By sharing our knowledge and expertise, we continue to grow further together!
Following these thoughtful considerations, the group shifted focus to Cardano. While the classic industry inquiry may pertain to price movements, the classic Cardano question remains: When apps? So far, the much-anticipated network has failed to deliver any groundbreaking innovations other than the base blockchain itself. Occam.fi now offers project incubation via their IDO and AMM services, making it easier to launch on Cardano than ever before. Some projects such as DeFIRE have successfully leveraged this opportunity and launched in the Cardano ecosystem. However, most of these applications are copycat dapps, with similar or nearly identical projects on Ethereum, Polkadot, and other popular chains. Additionally, the head of Cardano, Charles Hoskinson, boasts a personality much like sauerkraut. Often a lovely compliment or even centerpiece, the strong and sometimes off-putting aura emitted leads many to shy away from engaging.
Despite this lack of momentum on the surface, Cardano may well have some tricks up its sleeve. The network has yet to deploy smart contracts, a significant boon to any blockchain network. Enthusiasts speculate that once this development occurs in late 2021 or early 2022, Cardano will claim its rightful place at the helm of programmable money legos. Additionally, the network lacks compatibility with the Etheruem virtual machine (EVM), introducing unique challenges to programmers that want to build on the network. While the future remains uncertain, we find no shortage of exciting developments in the cutting-edge DeFi industry!
Bringing Folks Together
The energy, innovation, and excitement in DeFi continue to serve as a stark contrast to the business-as-usual TradFi environment. While one industry doesn’t hold an intrinsic edge over the other, the trend certainly suggests a continued migration from the traditional financial industry to DeFi. The swelling ranks of our community further cement this trend as we attract some incredibly bright and talented minds who are deeply curious about what DeFi has to offer. Providing quality information and dialogue regarding DeFi topics and fostering mutually beneficial connections remain our primary focuses at TradFi to DeFi.
If you or anyone you know might benefit from the resources we share daily, we’d love to connect! Not in the financial industry, or don’t think your role merits you a seat at the table? Nonsense — there are tens of thousands of individuals in similar positions looking to kick open a door to DeFi. Be a trailblazer, and let us help you on your journey. We look forward to growing with you!
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