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.
We have hit the pause button on the protocol again in light of suspicious transactions using flash loans and trading on Synthetix.
— bZx (@bzxHQ) February 18, 2020
Another #flashloan trade.
Profit 2378 ETH = $640,000 at current prices.
Quasi-instantaneous risk-free profit. https://t.co/Tj9HQ7xLsP
— Alex Krüger (@krugermacro) February 18, 2020
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”.
This is why I don't believe in DeFi. It's the worst of both worlds. Most DeFi can be shut down by a centralized party, so it's just decentralization theatre. And yet no one can undo a hack or exploit unless we add more centralization.
So how is this better than what we have now? https://t.co/F1HMSeqb6q
— Charlie Lee [LTC⚡] (@SatoshiLite) February 16, 2020
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’s DeFi exploitation season. The first exploit showed a lot of people that something like that is even possible. Now it’s go time
— Larry Cermak (@lawmaster) February 18, 2020
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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