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.

26 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?

    1. Hey crypto_enthusiast101, the crash in the crypto markets did have some short-term effects on the decentralized finance markets. Many investors faced losses due to the panic sell-off. However, it’s important to note that the crypto markets are known for their volatility, and investors understand the risks involved. As for recovering from the losses, it really depends on the individual investor’s strategy and their ability to weather the storm. Some may choose to hold onto their investments and wait for the market to stabilize, while others may see this as an opportunity to buy at lower prices. Overall, it’s a challenging time, but resilient investors have been able to bounce back in the past. Stay informed and make informed decisions. Best of luck!

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

    1. Hi John Doe, there are a few potential solutions being discussed to address the issue of crashes and congestion in decentralized finance markets. One proposal is to implement layer 2 solutions, which would help improve scalability and reduce gas fees. Another solution is to improve network infrastructure to handle higher transaction volumes. Additionally, there is ongoing research and development in the area of algorithmic stablecoins, which aim to stabilize the price of cryptocurrencies and reduce volatility. However, it’s important to remember that the nature of decentralized finance inherently involves risk and experimentation. So while solutions are being explored, it’s unlikely that crashes and congestion can be completely eliminated.

  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.

    1. Indeed, there are several solutions being discussed to prevent such crashes in the future. One proposed solution is the implementation of circuit breakers, similar to those used in traditional markets, which would temporarily halt trading when markets experience extreme volatility. Another proposal is the development of scalability solutions for the Ethereum network, such as layer 2 solutions or the migration to Ethereum 2.0. These solutions aim to reduce congestion and skyrocketing gas fees during times of high demand. While no solution is perfect, the DeFi community is actively addressing these challenges to build a more resilient and user-friendly decentralized finance ecosystem.

  7. Can you explain more about how the gas prices skyrocketed and why it affected DeFi so significantly?

    1. Sure, JohnSmith89! When the crypto markets crashed last week, there was a panic sell-off, which led to a rush to sell Ether. As a result, the Ethereum network became congested, causing gas prices to skyrocket. Gas fees became so high that executing transactions, especially in the decentralized finance (DeFi) space, became extremely expensive. This had a significant impact on DeFi because people with collateral debt positions suddenly found their positions under-collateralized due to the price drop. Some individuals were fortunate enough to add more collateral to maintain their positions, but the fees for executing these transactions were often more than 125% of the collateral amount. In certain cases, the gas fees were so astronomical that some DeFi applications, like MakerDAO’s Oasis app, couldn’t even support the transactions. So, in a nutshell, the increase in gas prices made it difficult and costly for users to participate in DeFi activities.

  8. It’s really frustrating how the decentralized finance markets crashed. The panic sell-off caused gas prices to skyrocket, making transactions costly. People with collateral debt positions suffered, and the application failures were disheartening. DeFi still has a long way to go.

    1. Hey cryptogirl92! The recent crash in the crypto markets has indeed highlighted some flaws in the DeFi system. The congestion on the Ethereum network and skyrocketing gas prices led to under-collateralization, liquidation, and application failures. However, it’s important to note that not all DeFi platforms were affected in the same way. The crash showcased the need for improvements and better scalability in the DeFi ecosystem. So while this incident raises concerns, it doesn’t necessarily mean that DeFi as a whole is not reliable. It’s a learning experience for the industry to address these challenges and make advancements.

  9. It’s really frustrating to see the way the decentralized finance markets crashed. I had my collateral debt positions under-collateralized due to the price drop. Trying to add more collateral only resulted in ridiculously high gas fees. DeFi is definitely proving to be a risky experiment.

  10. What are the long-term effects of these crashes on the decentralized finance markets? Will people still trust DeFi?

    1. It’s understandable that there are concerns about the long-term effects of these crashes on the decentralized finance markets. Trust is a delicate thing, and when people see their investments liquidated and applications failing, it can certainly shake their confidence in DeFi. However, it’s essential to remember that DeFi is still a nascent industry, and like any new technology, it’s bound to face challenges and setbacks. The key here is to learn from these experiences and use them to improve the system. Transparency, security, and robust risk management protocols are crucial in rebuilding trust. As the DeFi ecosystem evolves and matures, we can expect to see more innovative solutions that address these issues and provide better protection for investors. So, don’t lose hope just yet – DeFi has the potential to revolutionize finance, but it’s a journey that requires active participation from the community and continuous improvement.

  11. What is the long-term solution to prevent crashes and congestion in the decentralized finance market?

  12. I personally think that the crash in the decentralized finance markets last week was a wake-up call for everyone involved. It’s concerning to see how the rush to sell Ether caused such congestion on the Ethereum network, leading to skyrocketing gas prices. And the impact it had on DeFi, with people suddenly finding their positions under-collateralized, was truly unfortunate. This just shows that there’s still a lot of work to be done in this space.

  13. This crash really shook the DeFi markets. The Ethereum network congestion was a nightmare, and the gas fees were outrageous. It’s clear that the DeFi experiment still has a long way to go. Hopefully, these issues can be resolved soon.

  14. This is a complete disaster! The DeFi markets crashed and it caused a major panic sell-off. The Ethereum network became so congested that gas prices shot up, making transactions too expensive. People’s collateral debt positions became under-collateralized due to the price drop. And to make matters worse, the gas fees were ridiculously high, causing applications to fail. This just proves that DeFi is still an experimental space.

  15. As an avid investor in DeFi, the recent market crash and subsequent congestion on the Ethereum network have been extremely disheartening. It’s frustrating to see gas prices skyrocket and transaction fees reaching absurd levels. This has not only impacted the value of my positions but also caused applications like MakerDAO’s Oasis app to malfunction. The experiment of DeFi certainly has its challenges, but I hope we can find solutions to overcome these two-pronged problems.

  16. I think the crash in the crypto markets exposed the vulnerabilities of the decentralized finance markets. The congestion in the Ethereum network and skyrocketing gas prices caused a ripple effect, impacting people’s collateral debt positions. It’s unfortunate that many were liquidated and applications failed to work as expected. This incident definitely shows that DeFi still has a long way to go.

  17. Wow, what a disaster! The crash last week really exposed the vulnerabilities of decentralized finance. Those gas prices were insane and made it almost impossible to execute any transactions. It’s clear that DeFi still has a long way to go before it’s truly reliable.

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