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Why DeFi is Not a Centralized Crypto Circus


Martin Young | Feb 18, 2020 | 04:00

crypto DeFi News

Why DeFi is Not a Centralized Crypto Circus


Martin Young | Feb 18, 2020 | 04:00


Prominent crypto personality and Litecoin founder Charlie Lee recently railed on DeFi after a vulnerability was exploited on one protocol over the weekend. Here’s why he is wrong, and DeFi is here to stay.

DeFi Protocol Exploited

Unfortunately for decentralized finance platform bZx, their Fulcrum exchange was temporarily exploited while the team was due to present at the weekend’s ETHDenver conference.

At the time of writing bZx was still having issues with flash loans and they are getting worse.

It all began over the weekend when a trader managed to exploit a low liquidity Uniswap market in order to make one single transaction to net a profit of around $350,000.

Crypto industry insider Ryan Sean Adams has delved into how this was achieved in his latest blog. In short, the DeFi pirate borrowed $2.7 million of ETH for 15 seconds from DyDx and shorted wBTC using a 5x margin on Fulcrum.

wBTC, or wrapped bitcoin, is a low liquidity ERC-20 token which is backed by BTC. This enabled him to manipulate the market price on Uniswap, a decentralized on-chain protocol, to profit from the flash loan.

RSA looked at the positives from this adding that ‘DeFi is leveling up’ just by the premise that such a transaction was even achievable. He added that attacks are easy on low liquidity assets such as like wBTC so having high economic bandwidth assets, such as Ethereum, is vital to reduce risk.

DeFi is an embryonic environment and any new technology is going to have teething pains such as these, attacking them is completely counterproductive.

Charlie Lee on The Attack

The events were enough to draw the seldom seen Charlie Lee out to brand the entire industry as “the worst of both worlds”.

His concerns are over centralization, but this is a little rich from someone who sold his own stash of a crypto project he was supposed to be nurturing at its price peak, consequently eroding pretty much all confidence in it ever since.

Attacking an entire ecosystem because of one exploit in one minor protocol is also a little presumptuous as one respondent pointed out.

“Dismissing all of DeFi because of this is like dismissing the internet because of email spam,”

Crypto Tribalism Again

The rest of the thread spiraled into the crypto cesspit of toxic tribalism we’ve come to expect from highly controversial comments. The bitcoin maximalists sided with Lee while the Ethereum evangelists defended DeFi.

The bottom line is that DeFi is an entire financial ecosystem made up of numerous dApps, DEXes, protocols, and crypto assets. Naturally there will be vulnerabilities in some of them as the industry is barely two years old, and programmers are thin on the ground. Crypto researcher Larry Cermak concurred.

It has a long way to go yet and is currently at a stage that the internet was when only 100,000 people had access to it. Back then nothing worked flawlessly either.

Is DeFi a centralized crypto circus? Add your comments (without too much fighting) below!

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