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24 November 2020

Finance Redefined: You get hacked, they get hacked, everyone gets hacked, Nov. 11-18

Finance Redefined: You get hacked, they get hacked, everyone gets hacked, Nov. 11-18


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If people actually used insurance against hacks, this week would definitely have bankrupted a great many insurers.

We have, in order, Cheese Bank with a $3.3-million theft, Akropolis with its $2-million loss, Value DeFi with a whopping $6-million exploit, and finally Origin Protocol’s loss of $7 million.

As for flash loans, I think they’re the greatest tool for increasing DeFi market efficiency that we have at the moment.

But note that anything that can be done with a flash loan can also be done with a large pile of cash.

On one hand, we’re seeing pretty clear long-term stickiness after yield farming — proving that it’s at least somewhat successful at generating organic interest.

On the other hand, we’re seeing that yield farming is somewhat successful, so it may remain a long-term staple of the DeFi world.

The concept does have merits, but this summer showed that people often don’t understand what they’re getting into.

The difference is that the much saner yields avoid the huge boom-and-bust cycles typical of many DeFi “fair launches.”.

Another issue pointed out this week was the fact that Maker’s keepers — the agents responsible for liquidating bad debt — turned out to be completely avoiding small undercollateralized loans.

That would create unbacked Dai in a manner very similar to Black Thursday. I’m sure that in practice, some stakeholders would act altruistically to liquidate debt at a loss before it’s too late.

But that is human nature, and I expect that DeFi governance will eventually go through many of the lessons that history served us

Some people have high hopes for DeFi governance to reshape societies just because it’s “decentralized.” I hope that will be the case, but so far I’m just seeing your run-of-the-mill politics, complete with vested interests, propaganda and deflection.

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