DeFi can’t defy reality

The increasing noise about crypto adds up to a solution in search of a problem, says Jason Walsh
Image: Stockfresh

19 April 2022

Another day, another cryptocurrency robbery, with speculators – and presumably at least a few actual investors, however misguided – losing out to someone in possession of a keyboard and an Internet connection. $182 millon (approx. €168.6 million) worth of magic beans have been stolen in a heist of Beanstalk Farms, a decentralised finance, or ‘DeFi’ platform. 

DeFi is the latest in a long line of crypto hype, including Web 3.0, and DAOs, that gathered pace during the age of lockdown, with many of us spending too much time in front of our screens and dreaming of the big payout that would forever end the tyranny of Teams meetings. A step further than just buying cryptocurrency from an exchange, DeFi’s promise is to do away with such middlemen, allowing us all to become middlemen instead.

There are political and social questions around cryptocurrency that are in need of addressing, whether in terms of its energy, how it is increasing pitched at uninformed investors, or how wise it really is to seek to undermine national currencies, as some hardcore crypto enthusiasts want, and replace them with what amounts to a panoply of chits. Leaving all of those aside for the moment, however, there is another thing about crypto that also needs to be addressed: as a technology, it does nothing that cannot be done better, easier, and more cheaply in other ways.




NFTs or non-fungible tokens are a particularly absurd idea, though arguably they have found a real world use: allowing art auctioneers to keep gobs of suspect money flowing while eliminating the need to stack freeports full of paintings. Widely mocked as just being JPEG images, in fact NFTs aren’t even that. They are just URLs stored in a database. Nonetheless, money has poured into this ‘technology’, and, sadly, it has been given the imprimatur of said auctioneers.

Reality bites

Something is not right here. The Internet booms of the 1990s and 2010s were real. Real money was made with real products that had real uses. There was no shortage of bad ideas, nor of failures or bankruptcies, but it is clear for all to see that the Internet has had an enormous impact on how we live, work, learn, socialise and do business.

Crypto has been promoted in precisely the same way – essentially a revolution in the making – but has failed at each step along the road. As a currency, it is too volatile and too open to manipulation. As an asset class it is impossible to value. Even as a way of allowing migrants to avoid remittance fees, crypto is a failure: have you seen the cost of a bitcoin transaction these days?

Instead of delivering tangible value, it has done nothing more than accrue vast amounts of wealth in a very few hands, producing nothing in the process. Notably, that wealth will disappear in a puff of smoke if it is not eventually exchanged for something else. That’s where the rest of us come in, of course: someone has to buy the tokens if the ‘money’ is to mean anything. Cypto is not necessarily simply ‘greater fool’ investing, where the goal is to buy garbage and then sell it to someone less knowledgeable even than yourself, but, at the moment, that is all it has to offer.

‘But the blockchain’, crypto fans will reply. ‘There is more to this than crypto, because blockchain is a distributed ledger technology’. But the blockchain? But the blockchain has failed to find a problem that can’t be solved more easily another way. 

Technology is supposed to be about building a better mousetrap, or so we are told in any case. Blockchain is the ultimate solution in search of a problem.

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