The Two-Pronged Problem Plaguing DeFi

Last week, crypto markets crashed. Hard. Any investor, crypto or traditional, knows to expect crashes, but there was something especially off-putting about the way the decentralized finance markets crashed.

Last week, crypto markets crashed. Hard. Any investor, crypto or traditional, knows to expect crashes, but there was something especially off-putting about the way the decentralized finance markets crashed.

The tl;dr is this: The crypto markets crashed last week and that caused a panic sell-off. In the rush to sell Ether, the Ethereum network became so congested that gas prices skyrocketed. In many cases, the cost of the transaction was more than the transaction itself. This had a trickle down affect that significantly impacted DeFi. People with collateral debt positions suddenly had their positions under-collateralized because the price drop. For the lucky few that knew to check on this, they had an opportunity to add more collateral (Eth) to keep the position open, but when they tried to execute the transactions they found fees to be upwards of 125% the amount they were trying to collateralize. And in some cases, including on MakerDAO’s Oasis app, the gas fees were so high, the application couldn’t even support the transaction.

The above is part one of the two-pronged problem, and it’s a bad one. People were liquidated. Applications failed to work. The experiment of DeFi proved itself to truly be an experiment after all.

The second problem is potentially much bigger. Not everyone knew they needed to constantly monitor their positions. For some, especially those who came from traditional finance, they expected price alerts and communications that would help them understand what was happening. What they got instead was…nothing. If these people were not already on Twitter or Discord or Telegram, they were out of luck.

That’s unacceptable.

The fundamental flaw in how crypto builds is the assumption that everyone is technical and everyone will be technical. Mainstream users don’t hang out on Discord. The ones that hang out on Twitter aren’t following crypto accounts. Last week’s events proved two things:

  1. There is more engineering work to be done on the underlying protocol (Eth 2.0 will hopefully solve that).
  2. Builders need to communicate with their users properly, not through Twitter, Discord, and Telegram.

It is no longer acceptable to talk out of both sides of our mouths in crypto. We can’t say we want mainstream adoption while at the same time refusing to implement basic communication tools to help those mainstream users (and the crypto-savvy users) stay better informed.

Samantha Brown

Author: Samantha Brown

A writer on SimpleId.

6 thoughts on “The Two-Pronged Problem Plaguing DeFi”

  1. Did the crash in the crypto markets last week have any long-term effects on the decentralized finance markets? How are investors recovering from the losses?

  2. Is there any solution being proposed to prevent such crashes and congestion in the future?

  3. It’s incredible how the crash of the crypto markets had such a devastating impact on the decentralized finance markets. The congestion on the Ethereum network caused gas prices to soar, making transactions too expensive. The under-collateralization of debt positions added even more trouble. The failure of applications and the liquidation of people’s assets clearly shows that DeFi still has a long way to go in terms of stability and reliability.

  4. As an investor in crypto, I have to say the recent crash in the decentralized finance markets was truly concerning. The congestion in the Ethereum network caused gas prices to skyrocket, making transactions extremely costly. This not only impacted people’s collateral debt positions but also rendered applications useless. The DeFi experiment has definitely shown its flaws.

  5. This crash was a real wake-up call for the crypto market. It’s disheartening to see how the decentralized finance markets failed during this crisis. We need better infrastructure and solutions to avoid such problems in the future.

  6. As a crypto investor, I’ve never seen a crash quite like this. It’s alarming how the decentralized finance markets crashed and caused a panic sell-off. The skyrocketing gas prices on the Ethereum network made the situation worse. Many people ended up with under-collateralized positions due to the price drop. It’s a disaster for the DeFi experiment.

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