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The decentralisation illusion argument seems weak. One could have claimed the same about the early internet: Early internet wasn't truly decentralized as ther

The decentralisation illusion argument seems weak. One could have claimed the same about the early internet: Early internet wasn't truly decentralized as there were still ISPs, and you still need to register your domain with a centralized entity. This misses that the big change is one of access. Content creators were able to reach a large audience without playing ball with the big publishers or newspapers. With defi, the same can happen with finance. Marketplaces, exchanges and new financial instruments can be created by anyone that follows programmatic rules. Complex & expensive relationships with legacy banks are no longer required.

lottin 5y ago
You don't require a bank in the same sense that you don't require a baker. If you want to make your own bread, go head, nobody is stopping you. But in a modern society people engage in division of labour and specialisation, because this allows us to be orders of magnitude more productive and have things that we couldn't dream of making ourselves. People don't want to make their own bread, and they don't want to be their own bank either.
- aeternum 5y ago
  Maybe someone does want to create a very special and expensive type of bread and sell it worldwide. In order to accept payment, they must become a merchant with some centralized entity (Paypal, Mastercard, Visa). They must hope they live in the subset of countries where this is allowed. They must agree to a one-sided TOS that can be changed at any time. Then they must hope that all their buyers are honorable and trustworthy as those entities favor the buyer in a dispute. This is not an optimal state of affairs for the aspiring artisan bread maker.
  - dralley 5y ago
    >They must hope they live in the subset of countries where this is allowed. Although the overlap between this subset, and the subset of countries with reliable international shipping, is pretty high.
    - AnthonyMouse 5y ago
      Relevant if your product is literally bread. Not so relevant if it's photography or software or news reporting or comedy sketches. And even if it is bread, having one problem is better than having two problems.
  - RandomLensman 5y ago
    Depending where you live, there will already be restrictions who you can do transactions with (sanctions etc.). So irrespective of technology the world doesn't quite accommodate this at present.
  - hellojesus 5y ago
    Or they could sell their bread locally for cash only. Or they could make their own payment processor if the existing ones weren't doing a good enough job for them. There are a lot of avenues to work around the cartel of the banking industry, and I am a fan of any implementation that ignores the unconstitutional Bank Secrecy Act. Crypto does fall into this category but is not the only method.
    - landemva 5y ago
      'Or they could make their own payment processor...' Theoretically maybe. Money transmission laws will likely trip them up. Big barrier to entry.
      - hellojesus 5y ago
        Yes, that's why I stated that crypto was still applicable. You get the benefits of money transfer without the barriers to entry (except maybe in converting to and from fiat).
- idiotsecant 5y ago
  >People don't want to make their own bread, and they don't want to be their own bank either. Speak for yourself, I quite like the idea!
- jermaustin1 5y ago
  > People don't want to make their own bread, and they don't want to be their own bank either. But they aren't saying you have to be your own bank, by opening it all up, more and more people can be "banks" and that helps to decentralize finances from the handful of Big Banks. I'm not saying that random person down the road should be allowed to create a bank that others then trust with storing their assets, and I will still keep the majority of my assets in traditional banks, but as a whole, less power concentrated in the few is better for everyone.
  - lottin 5y ago
    I definitely agree that competition is very important, I don't think there are many doubts about that. I just don't see how DeFi can bring competition to the banking sector by allowing people to become banks. Ordinary people becoming a bank is not realistic competition to actual banks. People have jobs, they have work to do, they have to raise a family, they're not going to become competent bankers on top of that and outcompete professionals, even if they tried.
    - jermaustin1 5y ago
      I'm going to preface this with I have no idea how any of this ACTUALLY works, and I'm probably wrong, but the "blockchain" abstracts all the more complicated bits away. I'm not a crypto diehard, and probably never will be. I think they are neat, and I have about 10% of my net worth tied up in a handful of coins. Here is my understanding how we can all be banks without even really thinking about it. Some coins (PoS specifically) allow staking, which allows you to set it aside a certain amount, which is then used to validate other transactions, and you earn rewards. In traditional banking, this is kind of like a CD, and your money is used to help the bank out and it pays you interest on that. The Ethernet (and a few other coins Solana comes to mind) ledger allow for the creation of smart contracts (applications that run on the blockchain) that could (probably some already exist) allow you to automate the creation loans on the ledger, witnessed by the world, that automatically pay you back. You can probably use the smart contract to do a modicum of due diligence on the borrower. But instead of paying SynapseFi (or other but first name that came to mine) thousands a month to allow you to build out loans, its all there for you on the block chain. This probably IS the future of peer2peer lending, as it is already a HUGE industry, and this would kind of get rid of the middle man. One aspect of banking that is not really needed anymore would be the storage of assets. That is a built in part of cryptocurrency. There is still the question of how do you get crypto, and for now, and until more people use it for everyday actives, that requires exchanges. And Exchanges could be seen as a centralization of sorts, but even they are a dime a dozen so they are effectively decentralized. And most support transferring to a wallet. So... kinda decentralized.
bliteben 5y ago
And it turns out the only people wanting to make novel financial instruments on crypto currency are scammers.
- dralley 5y ago
  Most of the "novel" crypto financial instruments aren't necessarily "novel" so much as "made illegal in a century ago because of fraud and scams". Or at the very least "things with clear risks that crypto plebs are oblivious to" https://www.bloomberg.com/news/newsletters/2021-05-11/money-stuff-crypto-markets-are-where-the-fun-is https://www.bloomberg.com/news/newsletters/2021-05-11/money-...
  - exdsq 5y ago
    Care to show one or two financial instruments that were claimed to be "novel" but were made "illegal a century ago"?
    - kgwgk 5y ago
      https://www.bloomberg.com/opinion/articles/2015-06-19/bitcoin-bucket-shop-kicks-bucket https://www.bloomberg.com/opinion/articles/2015-06-19/bitcoi...
      - exdsq 5y ago
        This is six and a half years old, wasn't about a novel defi instrument but about derivatives, and derivatives aren't illegal. They're also now well implemented in DeFi.
  - nathias 5y ago
    were they made illegal for my safety?
cblconfederate 5y ago
network effects are real though. That's like saying that anyone can make a blog or anyone can make a facebook , but good luck with that. the problem is that , unlike bitcoin, VCs will control all the dominant network effects.
JacobThreeThree 5y ago
Instead of having to curry favor with bankers, you now have to do so with a clique of developers, lest they hard or soft fork your crypto out of existence. “The development community is proposing a soft fork, (with NO ROLLBACK; no transactions or blocks will be “reversed”) which will make any transactions that make any calls/callcodes/delegatecalls that execute code with code hash (ie. The DAO and children) lead to the transaction (not just the call, the transaction) being invalid, preventing the Ether from being withdrawn by the attacker past the 27-day window. This will later be followed up by a hard fork which will give token holders the ability to recover their Ether.” Vitalik Buterin in response to the DAO Vulnerability on June 17
- tata71 5y ago
  At this stage of maturity, ETH would never survive a fork like that, which is pretty evident given the umpteen hacks that have happened since going unabated!
- hrhrhrhrhr 5y ago
  This is the actual issue with DeFi's "decentralization", not what the article talks about. Bitcoin remains the only decentralized cryptocurrency that keeps living without governance.
RandomLensman 5y ago
First off, this probably only holds if you sort of ignore current rules and regulations in a lot of cases (e.g. KYC, AML, securities laws, clearing requirements, reporting etc.). But to be fair, there is a discussion to be had if all those regulations are fit for purpose. Second, banks do a lot more than just be middle men in financial markets. They do have risk bearing capacity and they are willing to - crucially - use that on uncollaterized risk and things not netted atomistically. This means the demand for liquidity is kept low - which is good because money can flow towards longer term objectives.
- pishpash 5y ago
  Risk is the only issue. Regulations are to ensure banks have the risk-bearing capacity that they say they do. A formalization of risk-bearing capacity, if you will. However, are banks the only ones with risk-bearing capacity? And if not, and especially if such capacity can be programmatically verified, is there still any benefit to banks?
  - RandomLensman 5y ago
    There is a ton of regulations aimed at proper functioning of markets unrelated to banks. In uncollateralized situations you cannot verify/verification is meaningless as you might not be able to claim what you verified.
    - pishpash 5y ago
      Let me pose the question thusly: Is there any decision making process by a bank, even ones executed by humans, not formalizable programmatically, provided sufficient information? If not, then what's to prevent decentralized finance from working just as well, provided the same information into the system?
      - hiq 5y ago
        1. The way you'll provide the real-world information won't be decentralized (it'll be some kind of oracle). 2. The costs of decentralized finance are too high.

lottin 5y ago

You don't require a bank in the same sense that you don't require a baker. If you want to make your own bread, go head, nobody is stopping you. But in a modern society people engage in division of labour and specialisation, because this allows us to be orders of magnitude more productive and have things that we couldn't dream of making ourselves. People don't want to make their own bread, and they don't want to be their own bank either.

aeternum 5y ago
Maybe someone does want to create a very special and expensive type of bread and sell it worldwide. In order to accept payment, they must become a merchant with some centralized entity (Paypal, Mastercard, Visa). They must hope they live in the subset of countries where this is allowed. They must agree to a one-sided TOS that can be changed at any time. Then they must hope that all their buyers are honorable and trustworthy as those entities favor the buyer in a dispute. This is not an optimal state of affairs for the aspiring artisan bread maker.
- dralley 5y ago
  >They must hope they live in the subset of countries where this is allowed. Although the overlap between this subset, and the subset of countries with reliable international shipping, is pretty high.
  - AnthonyMouse 5y ago
    Relevant if your product is literally bread. Not so relevant if it's photography or software or news reporting or comedy sketches. And even if it is bread, having one problem is better than having two problems.
- RandomLensman 5y ago
  Depending where you live, there will already be restrictions who you can do transactions with (sanctions etc.). So irrespective of technology the world doesn't quite accommodate this at present.
- hellojesus 5y ago
  Or they could sell their bread locally for cash only. Or they could make their own payment processor if the existing ones weren't doing a good enough job for them. There are a lot of avenues to work around the cartel of the banking industry, and I am a fan of any implementation that ignores the unconstitutional Bank Secrecy Act. Crypto does fall into this category but is not the only method.
  - landemva 5y ago
    'Or they could make their own payment processor...' Theoretically maybe. Money transmission laws will likely trip them up. Big barrier to entry.
    - hellojesus 5y ago
      Yes, that's why I stated that crypto was still applicable. You get the benefits of money transfer without the barriers to entry (except maybe in converting to and from fiat).
idiotsecant 5y ago
>People don't want to make their own bread, and they don't want to be their own bank either. Speak for yourself, I quite like the idea!
jermaustin1 5y ago
> People don't want to make their own bread, and they don't want to be their own bank either. But they aren't saying you have to be your own bank, by opening it all up, more and more people can be "banks" and that helps to decentralize finances from the handful of Big Banks. I'm not saying that random person down the road should be allowed to create a bank that others then trust with storing their assets, and I will still keep the majority of my assets in traditional banks, but as a whole, less power concentrated in the few is better for everyone.
- lottin 5y ago
  I definitely agree that competition is very important, I don't think there are many doubts about that. I just don't see how DeFi can bring competition to the banking sector by allowing people to become banks. Ordinary people becoming a bank is not realistic competition to actual banks. People have jobs, they have work to do, they have to raise a family, they're not going to become competent bankers on top of that and outcompete professionals, even if they tried.
  - jermaustin1 5y ago
    I'm going to preface this with I have no idea how any of this ACTUALLY works, and I'm probably wrong, but the "blockchain" abstracts all the more complicated bits away. I'm not a crypto diehard, and probably never will be. I think they are neat, and I have about 10% of my net worth tied up in a handful of coins. Here is my understanding how we can all be banks without even really thinking about it. Some coins (PoS specifically) allow staking, which allows you to set it aside a certain amount, which is then used to validate other transactions, and you earn rewards. In traditional banking, this is kind of like a CD, and your money is used to help the bank out and it pays you interest on that. The Ethernet (and a few other coins Solana comes to mind) ledger allow for the creation of smart contracts (applications that run on the blockchain) that could (probably some already exist) allow you to automate the creation loans on the ledger, witnessed by the world, that automatically pay you back. You can probably use the smart contract to do a modicum of due diligence on the borrower. But instead of paying SynapseFi (or other but first name that came to mine) thousands a month to allow you to build out loans, its all there for you on the block chain. This probably IS the future of peer2peer lending, as it is already a HUGE industry, and this would kind of get rid of the middle man. One aspect of banking that is not really needed anymore would be the storage of assets. That is a built in part of cryptocurrency. There is still the question of how do you get crypto, and for now, and until more people use it for everyday actives, that requires exchanges. And Exchanges could be seen as a centralization of sorts, but even they are a dime a dozen so they are effectively decentralized. And most support transferring to a wallet. So... kinda decentralized.

bliteben 5y ago

And it turns out the only people wanting to make novel financial instruments on crypto currency are scammers.

dralley 5y ago
Most of the "novel" crypto financial instruments aren't necessarily "novel" so much as "made illegal in a century ago because of fraud and scams". Or at the very least "things with clear risks that crypto plebs are oblivious to" https://www.bloomberg.com/news/newsletters/2021-05-11/money-stuff-crypto-markets-are-where-the-fun-is https://www.bloomberg.com/news/newsletters/2021-05-11/money-...
- exdsq 5y ago
  Care to show one or two financial instruments that were claimed to be "novel" but were made "illegal a century ago"?
  - kgwgk 5y ago
    https://www.bloomberg.com/opinion/articles/2015-06-19/bitcoin-bucket-shop-kicks-bucket https://www.bloomberg.com/opinion/articles/2015-06-19/bitcoi...
    - exdsq 5y ago
      This is six and a half years old, wasn't about a novel defi instrument but about derivatives, and derivatives aren't illegal. They're also now well implemented in DeFi.
- nathias 5y ago
  were they made illegal for my safety?

cblconfederate 5y ago

network effects are real though. That's like saying that anyone can make a blog or anyone can make a facebook , but good luck with that. the problem is that , unlike bitcoin, VCs will control all the dominant network effects.

JacobThreeThree 5y ago

Instead of having to curry favor with bankers, you now have to do so with a clique of developers, lest they hard or soft fork your crypto out of existence. “The development community is proposing a soft fork, (with NO ROLLBACK; no transactions or blocks will be “reversed”) which will make any transactions that make any calls/callcodes/delegatecalls that execute code with code hash (ie. The DAO and children) lead to the transaction (not just the call, the transaction) being invalid, preventing the Ether from being withdrawn by the attacker past the 27-day window. This will later be followed up by a hard fork which will give token holders the ability to recover their Ether.” Vitalik Buterin in response to the DAO Vulnerability on June 17

tata71 5y ago
At this stage of maturity, ETH would never survive a fork like that, which is pretty evident given the umpteen hacks that have happened since going unabated!
hrhrhrhrhr 5y ago
This is the actual issue with DeFi's "decentralization", not what the article talks about. Bitcoin remains the only decentralized cryptocurrency that keeps living without governance.

RandomLensman 5y ago

First off, this probably only holds if you sort of ignore current rules and regulations in a lot of cases (e.g. KYC, AML, securities laws, clearing requirements, reporting etc.). But to be fair, there is a discussion to be had if all those regulations are fit for purpose. Second, banks do a lot more than just be middle men in financial markets. They do have risk bearing capacity and they are willing to - crucially - use that on uncollaterized risk and things not netted atomistically. This means the demand for liquidity is kept low - which is good because money can flow towards longer term objectives.

pishpash 5y ago
Risk is the only issue. Regulations are to ensure banks have the risk-bearing capacity that they say they do. A formalization of risk-bearing capacity, if you will. However, are banks the only ones with risk-bearing capacity? And if not, and especially if such capacity can be programmatically verified, is there still any benefit to banks?
- RandomLensman 5y ago
  There is a ton of regulations aimed at proper functioning of markets unrelated to banks. In uncollateralized situations you cannot verify/verification is meaningless as you might not be able to claim what you verified.
  - pishpash 5y ago
    Let me pose the question thusly: Is there any decision making process by a bank, even ones executed by humans, not formalizable programmatically, provided sufficient information? If not, then what's to prevent decentralized finance from working just as well, provided the same information into the system?
    - hiq 5y ago
      1. The way you'll provide the real-world information won't be decentralized (it'll be some kind of oracle). 2. The costs of decentralized finance are too high.