Current state of DeFi
The DeFi ecosystem today is full of defective products that are early versions of this technology. These products have flaws and shortcomings, and the people are also very greedy that don’t think about the results of their actions. They don’t have any concerns for who ends up paying for their gains.
This ecosystem can perform much better. It can eliminate these shortcomings.
The Initial Coin Offering (ICO) market in 2017 should be a good lesson for the DeFi industry and, given that historic event, it should address the existing shortcomings and deficiencies.
DeFi is now exactly in the same position. At that time, many projects appeared in the digital currency field with unrealistic promises. After a while, they failed to fulfill their promises and disappeared. Consequently, this caused discouragement among the people and marked the crypto winter for a long time.
In short, this should be a lesson for the DeFi industry and the people of this industry should try to fulfill their promises.
DeFi fans often talk about the flawed banking and financial system. This is certainly true, and the system is inefficient. But on the other hand, fans of this industry have forgotten that DeFi also has many flaws and shortcomings.
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The purpose of creating DeFi technology was to achieve freedom and democracy and to provide equal opportunities for all the people. These goals are very noble and respected, but unfortunately what DeFi projects are doing right now is nothing close to these ideals.
So far, DeFi has done the following:
- Developers build multibillion-dollar systems which they don’t benefit from
- Developers deceive their communities to cash out sooner.
- Liquidity providers abruptly cut their support for systems.
- Fans of token feel deep-seated FOMO which cause inflation.
- Governance tokens are not used to govern and have become a means to earn rewards.
- Voting is something that project developers accept or reject based on their opinions.
- Several tokens are pre-mined by project founders which the community has to pay.
- Many DiFi projects fail to motivate their shareholders.
- The smart contract platforms have such high fees that only big traders can hope to make a profit from them.
How can DeFi deliver on the promises?
The crypto community can do better by only supporting projects which live up to their promises. This requires culture-building and critical thinking. Moreover, we must remember that getting rich by sacrificing others, will have terrible consequences. It may even cause another crypto winter.
Simple rules for DiFi projects
There is a set of guidelines that should be considered before participating in any DiFi project.
First rule of DiFi projects
First, the founders of these projects must be well-known and have sufficient experience in the blockchain industry. Naturally, an unidentified person can easily commit fraud and the cost of exit scamming is very low.
The only projects which are trustworthy, are those with credible and publicly identified people behind them.
Second rule of DiFi projects
Everyone involved in a project must have the same opportunities to make a profit. Projects that rely on a particular group will not have a long-term profit.
Third rule of DiFi projects
There should be no pre-mine or development funds for robbing. Pre-mine means giving privileges to developers. This way they are more likely to dump projects and cash out early.
Instead, these projects should develop gradually and use what they receive for their work.
Fourth rule of DiFi projects
Governance must be taken seriously and governance coins must have limited time (not short or long periods). Short emission periods will become a privilege for the early adopters. On the other hand, if they have longer periods, the real token economy of the project will lose its value. These coins should only be used for governance.
When a project claims to have community-based governance, polls should lead to smart contract actions, and if such actions are not observed, the project is definitely flawed.
Fifth rule of DiFi projects
There should be a strategy to prevent the escape of liquidity providers. The necessary security measures must be taken in this regard. These liquidity providers sometimes come out of liquidity pools without prior notice and cause trouble for others.
In addition, there are still many problems with hacking smart contracts, which suggests that they should be open source and receive an independent source code audit.
Sixth rule of DiFi projects
Finally, the cost of transaction fees should not affect the profitability of small traders. Recently, DiFi transactions on Ethereum cost an average of $40 or more, which is not at all cost-effective for investments under $100.
Above all, if this problem remains, DiFi will be like any other finances which only rich people can participate in.
To sum up, the necessities mentioned above are not considered for many so-called DeFi projects today. Moreover, the proliferation of these projects clearly shows the lack of attention to these rules.
Real DeFi projects create value and provide a win-win situation for all participants. But unfortunately, today’s DeFi projects are based on pumps and dump, and making profit is possible only by sacrificing other people.
So in order not to get into another winter, DeFi industry need a new approach and the projects should fulfill their commitments.
Only after applying these rules, DeFi and digital currency will be widely accepted and will attract public attention.
What is your opinion? To what extent do you agree with the notes mentioned in this article? Let us know.