Claims That DeFi Is Unraveling Or Structurally Flawed Are Unfounded

Claims That DeFi Is Unraveling Or Structurally Flawed Are Unfounded

Amidst the severe contraction in cryptocurrencies and the near or actual insolvency of prominent crypto-infrastructure companies (BlockFi, Celsius, Voyager), there is talk that DeFi is in decline and its foundational structure is weak. That observation is misguided, ill-informed, and outright false. The problems we are witnessing began with a steep, sudden, and broad market decline in all cryptocurrencies which triggered problems in "algorithmic" Stablecoins like Terra Luna LUNA (and not the fully fiat-backed Stablecoins like USDC USDC or USDT), and a consequent deleveraging that ensued at major CeFi companies which has pushed many trading and prime brokers towards insolvency. But these problems are almost entirely emblematic of CeFi companies and in no way a reflection on the foundational principles and the soundness of operation of DeFi platforms. The DeFi infrastructure and underlying models have performed very well, just as expected, despite being subjected to severe market pressures. This Viewpoint clears the misunderstanding that DeFi is unraveling or that its core underpinnings are faulty and explains where the problems started and propagated from the current market dislocation. The notion that DeFi is somehow to blame for the current problems in Crypto partly originates from a lack of fundamental understanding of the