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I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system a

I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system at the right time to cause catastrophic failures. Remember that all complex systems operate in a degraded state. If there's ever a way that only part of a complicated swap executes correctly the trade can get really far out of position. People in Ethereum land will say things like "the smart contracts can't possibly execute if all of these conditions aren't met!", but I can assure you that lots of extremely fault-tolerant systems built by very smart people (like electronic stock exchanges) have failed in very surprising ways. Weakly collateralized flash loans are just faster leveraged tools with all of the tradeoffs that entails. YMMV, there's definitely a lot of money to be made. https://www.youtube.com/watch?v=SjbPi00k_ME https://www.youtube.com/watch?v=SjbPi00k_ME << Relevant.

solotronics 6y ago
possibly when you are depending on transactions being verified on two different chains but one can do child pays for parent or can be overwritten on a smaller blockchain you could end up with a "blockchain race condition"
ethbro 6y ago
Isn't that the whole security / obscurity point? That true security only comes by being exposed to active, intelligent, informed adversaries for a sufficient amount of time? Or, another way: each exploit and oops only improves the system, rather than being a signal of its failure. And let's be honest, the competition is still "Oops, I accidentally sent $900M to the wrong party." [1] [1] https://news.ycombinator.com/item?id=24222045 https://news.ycombinator.com/item?id=24222045
- Analemma_ 6y ago
  > And let's be honest, the competition is still "Oops, I accidentally sent $900M to the wrong party." [1] The counterargument there is that Citibank is currently pursuing a resolution in the courts to that issue, and if they win they will get their $900M back. If you flub a DeFi transaction, you're shit outta luck.
  - alkonaut 6y ago
    Exactly. There is no way I'd ever want to anything remotely important, or remotely high value, on a system that isn't run by humans and with transactions reversible in courts. Who is it that uses these smart contracts, and for what? Is it mostly a gadget for research and speculation (still)?
    - iSnow 6y ago
      I work in old industry and the supply chain guys as well as finance is having a boner from the idea of moving their crufty systems to blockchain. The whole paper trail around a bill of lading isn't a joke if you are shipping from say China to South America. But - like the internet - it's just a fad that will soon pass.
      - RhodesianHunter 6y ago
        It'll never happen on the supply chain because of all of the entities in the middle with zero desire to participate.
        rglullis 6y ago
        If they don't, they will be put out of business. Do you think if Walmart says "I will only buy from you if I am able to audit you and prove that your shrinkage is less than X%" they are just going to say "Opposite, sorry we can't do that."? Or if Amazon ever starts a blockchain-based certification system to crack down on counterfeit products, the legit distributors are not going to push down on all their suppliers? Of course they will.
        RhodesianHunter 6y ago
        This thinking belies a very simplistic view of a very complex supply chain. Brands like Nike often don't touch their products after they produce the design. Manufacturing, distribution, shipping, warehousing, sales are all handled by a massive web of smaller entities with long term contracts. Most of these businesses use very very old tech, and will actively resist change. Its a chicken or egg problem too, since having half of your products on a blockchain is pretty much worthless, it's an all-or-nothing problem which makes it that much more of a massive undertaking. I've studied this pretty extensively and honestly don't think it'll ever happen. At least unless the current paradigm of supply changes massively.
- cryptica 6y ago
  >> each exploit and oops only improves the system This is not necessarily true. If the system architecture is highly complex and poorly designed, each exploit will result in a patch which will only make the system more complex and more brittle. IMO this is exactly what is happening with Ethereum.
emrehan 6y ago
Good point but it won’t stop DeFi’s growth. In my opinion, such risks shouldn’t stop DeFi’s growth neither. Similar risks have been present in conventional finance and economy too. Relevant: https://youtu.be/ed2FWNWwE3I https://youtu.be/ed2FWNWwE3I Instead of fearing from the risks we should quantify and analyze them.
- xg15 6y ago
  Oh great, so we'll solve the problem of insurmountable complexity by putting another layer of complexity on top that is supposed to understand the first layer of complexity for us.
  - um_ya 6y ago
    That's the entire state of computer science. Over time, strong systems become black box tools for more complex systems.
    - spotman 6y ago
      and less strong systems , also, become black boxes for other systems...
    - xg15 6y ago
      Until one of the systems break and you're forced to give up the black box illusion.
Taek 6y ago
This DeFi stuff is playing with fire because the products being released have significantly outpaced the state of the art in building safe smart contracts. To make an analogy, imagine that instead of DeFi, we were talking about skyscrapers. Imagine that thousands of engineers funded by millions of people who believed in them were building 25 kilometer tall towers using technology that they discovered in Isaac Arthur videos. And they were doing it today, before any of the technologies like active support structures had been properly matured. That's what's happening here. It's not that building towers is bad or unsafe, and it's not that the technology behind 25 km towers is fundamentally unworkable, but it IS the case that you shouldn't be doing it just yet given our current engineering knowledge. Defi is insanely cool, insanely powerful, and it will dramatically change the landscape of society. But given the state of today's technology, if your product is anything fancier than Uniswap (sorry Maker, sorry Curve, sorry YAMs, sorry Augur, etc), it's not safe and it's ahead of its time. A lot of these projects are repeats of things like pets.com. Great idea, but it was too early (Amazon eventually fulfilled the vision though).
- shajznnckfke 6y ago
  I don’t disagree with your claim here, but aren’t existing systems even worse? The conventional electronic payments system is in many ways permissionless. Even if crypto doesn’t live up to all the promises it makes, it may still add value. If crypto is building poorly-engineered space elevators to get out payments to and from the sky, maybe the current system is throwing them in artillery and parachutes and hoping they land where you aim.
  - xiphias2 6y ago
    I stayed with Bitcoin not because I don't see how cool Ethereum contracts are, but because it's all about getting at least 1 thing right, which is digital scarce money. Even that itself is an incredibly hard problem. Getting smart contracts to be secure will take much more time, so I'm staying an outside observer.
- Melting_Harps 6y ago
  > Defi is insanely cool, insanely powerful, and it will dramatically change the landscape of society. As a person who has been around this tech since 2011, can you explain what exactly it is you find so fascinating about this other than the seemingly absurd amounts of money some people have made so far? This all just seems like a reshased version of the DAO to me and I have ignored it entirely.
_csoo 6y ago
>I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system at the right time to cause catastrophic failures. Substitute "software" for DeFi. Every single day we're playing with fire through low quality code and bad security practices. DeFi just exposes the real financial costs and consequences of terrible software development. How many countless dollars and hours and data have been lost through bad code?
spopejoy 6y ago
> I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system at the right time to cause catastrophic failures. We've already been through this with algorithmic trading in stocks: the flash crashes of 2010-12. Some were way bigger in terms of damage than the entire crypto market. So yes "there will be blood" but you'll see all of the DEXs and other mechanisms eventually implement the same techniques that NASD and the stock market implemented to fight it: limits on price movement, kill switches (probably automated), market pauses etc.
rstuart4133 6y ago
Of course DeFi is playing with fire. And of course a lot of people are going to get badly burnt. But the analogy is closer than you think. People still get badly burnt by real fire every day. Without coal fired power stations, blast furnaces and internal combustion engines we would not have modern society. If currently thinking is correct, without cooking food on fire there would be no intelligent hairless apes contemplating a future when DeFi actually does something useful. PS: As the article says, transaction fees are of the order of $10..$20 per trade. DeFi trades derivatives in crypto currencies that have found no useful niche whatsoever (bitcoin being an exception, if you regard being the currency of choice for illegal activities as useful). In that environment, the only people who are reliably making money are getting those fees.

solotronics 6y ago

possibly when you are depending on transactions being verified on two different chains but one can do child pays for parent or can be overwritten on a smaller blockchain you could end up with a "blockchain race condition"

ethbro 6y ago

Isn't that the whole security / obscurity point? That true security only comes by being exposed to active, intelligent, informed adversaries for a sufficient amount of time? Or, another way: each exploit and oops only improves the system, rather than being a signal of its failure. And let's be honest, the competition is still "Oops, I accidentally sent $900M to the wrong party." [1] [1] https://news.ycombinator.com/item?id=24222045 https://news.ycombinator.com/item?id=24222045

Analemma_ 6y ago
> And let's be honest, the competition is still "Oops, I accidentally sent $900M to the wrong party." [1] The counterargument there is that Citibank is currently pursuing a resolution in the courts to that issue, and if they win they will get their $900M back. If you flub a DeFi transaction, you're shit outta luck.
- alkonaut 6y ago
  Exactly. There is no way I'd ever want to anything remotely important, or remotely high value, on a system that isn't run by humans and with transactions reversible in courts. Who is it that uses these smart contracts, and for what? Is it mostly a gadget for research and speculation (still)?
  - iSnow 6y ago
    I work in old industry and the supply chain guys as well as finance is having a boner from the idea of moving their crufty systems to blockchain. The whole paper trail around a bill of lading isn't a joke if you are shipping from say China to South America. But - like the internet - it's just a fad that will soon pass.
    - RhodesianHunter 6y ago
      It'll never happen on the supply chain because of all of the entities in the middle with zero desire to participate.
      - rglullis 6y ago
        If they don't, they will be put out of business. Do you think if Walmart says "I will only buy from you if I am able to audit you and prove that your shrinkage is less than X%" they are just going to say "Opposite, sorry we can't do that."? Or if Amazon ever starts a blockchain-based certification system to crack down on counterfeit products, the legit distributors are not going to push down on all their suppliers? Of course they will.
        RhodesianHunter 6y ago
        This thinking belies a very simplistic view of a very complex supply chain. Brands like Nike often don't touch their products after they produce the design. Manufacturing, distribution, shipping, warehousing, sales are all handled by a massive web of smaller entities with long term contracts. Most of these businesses use very very old tech, and will actively resist change. Its a chicken or egg problem too, since having half of your products on a blockchain is pretty much worthless, it's an all-or-nothing problem which makes it that much more of a massive undertaking. I've studied this pretty extensively and honestly don't think it'll ever happen. At least unless the current paradigm of supply changes massively.
cryptica 6y ago
>> each exploit and oops only improves the system This is not necessarily true. If the system architecture is highly complex and poorly designed, each exploit will result in a patch which will only make the system more complex and more brittle. IMO this is exactly what is happening with Ethereum.

emrehan 6y ago

Good point but it won’t stop DeFi’s growth. In my opinion, such risks shouldn’t stop DeFi’s growth neither. Similar risks have been present in conventional finance and economy too. Relevant: https://youtu.be/ed2FWNWwE3I https://youtu.be/ed2FWNWwE3I Instead of fearing from the risks we should quantify and analyze them.

xg15 6y ago
Oh great, so we'll solve the problem of insurmountable complexity by putting another layer of complexity on top that is supposed to understand the first layer of complexity for us.
- um_ya 6y ago
  That's the entire state of computer science. Over time, strong systems become black box tools for more complex systems.
  - spotman 6y ago
    and less strong systems , also, become black boxes for other systems...
  - xg15 6y ago
    Until one of the systems break and you're forced to give up the black box illusion.

Taek 6y ago

This DeFi stuff is playing with fire because the products being released have significantly outpaced the state of the art in building safe smart contracts. To make an analogy, imagine that instead of DeFi, we were talking about skyscrapers. Imagine that thousands of engineers funded by millions of people who believed in them were building 25 kilometer tall towers using technology that they discovered in Isaac Arthur videos. And they were doing it today, before any of the technologies like active support structures had been properly matured. That's what's happening here. It's not that building towers is bad or unsafe, and it's not that the technology behind 25 km towers is fundamentally unworkable, but it IS the case that you shouldn't be doing it just yet given our current engineering knowledge. Defi is insanely cool, insanely powerful, and it will dramatically change the landscape of society. But given the state of today's technology, if your product is anything fancier than Uniswap (sorry Maker, sorry Curve, sorry YAMs, sorry Augur, etc), it's not safe and it's ahead of its time. A lot of these projects are repeats of things like pets.com. Great idea, but it was too early (Amazon eventually fulfilled the vision though).

shajznnckfke 6y ago
I don’t disagree with your claim here, but aren’t existing systems even worse? The conventional electronic payments system is in many ways permissionless. Even if crypto doesn’t live up to all the promises it makes, it may still add value. If crypto is building poorly-engineered space elevators to get out payments to and from the sky, maybe the current system is throwing them in artillery and parachutes and hoping they land where you aim.
- xiphias2 6y ago
  I stayed with Bitcoin not because I don't see how cool Ethereum contracts are, but because it's all about getting at least 1 thing right, which is digital scarce money. Even that itself is an incredibly hard problem. Getting smart contracts to be secure will take much more time, so I'm staying an outside observer.
Melting_Harps 6y ago
> Defi is insanely cool, insanely powerful, and it will dramatically change the landscape of society. As a person who has been around this tech since 2011, can you explain what exactly it is you find so fascinating about this other than the seemingly absurd amounts of money some people have made so far? This all just seems like a reshased version of the DAO to me and I have ignored it entirely.

_csoo 6y ago

>I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system at the right time to cause catastrophic failures. Substitute "software" for DeFi. Every single day we're playing with fire through low quality code and bad security practices. DeFi just exposes the real financial costs and consequences of terrible software development. How many countless dollars and hours and data have been lost through bad code?

spopejoy 6y ago

> I really think that all of this DeFi stuff is playing with fire. If these tools scale large enough, it's easy to imagine breaking the right link in the system at the right time to cause catastrophic failures. We've already been through this with algorithmic trading in stocks: the flash crashes of 2010-12. Some were way bigger in terms of damage than the entire crypto market. So yes "there will be blood" but you'll see all of the DEXs and other mechanisms eventually implement the same techniques that NASD and the stock market implemented to fight it: limits on price movement, kill switches (probably automated), market pauses etc.

rstuart4133 6y ago

Of course DeFi is playing with fire. And of course a lot of people are going to get badly burnt. But the analogy is closer than you think. People still get badly burnt by real fire every day. Without coal fired power stations, blast furnaces and internal combustion engines we would not have modern society. If currently thinking is correct, without cooking food on fire there would be no intelligent hairless apes contemplating a future when DeFi actually does something useful. PS: As the article says, transaction fees are of the order of $10..$20 per trade. DeFi trades derivatives in crypto currencies that have found no useful niche whatsoever (bitcoin being an exception, if you regard being the currency of choice for illegal activities as useful). In that environment, the only people who are reliably making money are getting those fees.