Why DeFi Investors Should Sh*t Themselves — The Death Of DeFi
Continuing the saga of this amazing title. I wrote an article explaining why banks should be scared since DeFi will replace them. You can read it here.
First Terra-Luna crashes to 0, now Celsius is going down the same road. That only means one thing, DeFi is officially dead.
How are all these big corporations failing terribly and losing the average crypto investor a shit ton of money?
But first …
What happened to Terra-Luna and Celsius?
Terra-Luna
was an algorithmic-backed stable coin. In simpleton terms, 1 UST (Terra USD, a cryptocurrency) = 1 USD thanks to arbitrage trading.
People who do arbitrage trading buy UST when it is lower than 1 USD so then the price goes up, when it is higher than 1 USD they sell, and the price goes down.
And you could stake, buy and hold, UST and get a 20% APY, that’s how they attracted investors.
But the UST depegged from the dollar (didn’t equal 1 USD anymore, it went to 0.60 USD) and that caused a death spiral to 0.
Here’s a 10-minute video of Coffeezilla explaining how it exactly happened.
The project failed, and millions of dollars were lost.
Celsius
was a new age bank offering insane APY’s as well, but they couldn’t keep up paying investors in this bear market.
So they started doing some sketchy stuff. Long story short, it’s a dead company now.
Here’s a 10-minute video of Coffeezilla explaining how it exactly happened.
The project failed, and millions of dollars were lost.
This is proof that DeFi is dangerous and will never be as good as banks.
Two failed projects can’t prove the end of DeFi or crypto in general.
We’re currently in a bear market, which means everything is down.
BTC is currently trading at around $20k and ETH at $1k. That’s a decrease of around 70% from their all-time highs, respectively around $60k and $4k.
And it is scary, new investors who haven’t experienced something like this are panicking like crazy, which is understandable if you only have experienced crypto going up.
Celsius and Luna only function when everything is a fairytale, like for example in a bull market.
But as soon as it gets rough, like now, it fails to keep up paying investors since the whole business model is messed up.
A bear market flushes all the waste away. And the best, most promising things are built during/after a bear market.
Look at Facebook, it was built right after the infamous Dotcom crash.
Everyone was making money in DeFi for a while, which isn’t normal.
Companies overpromising immense APY’s, ‘NFT traders’ making an insane amount of money trading pictures of apes, altcoins with no value still randomly pumping, …
If the entire market is going up, it’s hard to lose money in that market.
But if the entire market is going down at unbelievable rates, then the default is set at losing your money.
Currently what we’re seeing is just the toilet of DeFi being flushed, all the waste is going down to the sewer.
This sets a standard for future projects. DeFi companies can’t overpromise and underdeliver anymore.
You can’t be doing the same things the failed projects have been doing, although funnily enough, some try.
USDD copying Luna for example, but promising ‘risk-free’ 40% APY, which is DOUBLE the amount of what Luna offered. Hilarious.
New things will be built. This isn’t the end of DeFi and crypto as some people would like to make us believe.
And one day, banks, the way we know them, will be the ones who get flushed away.
Get ready, here comes some nerd talk :)
I made my own staking smart contract during all of this. It’s just a project so that I can learn how to build smart contracts.
All credit goes to freecodecamp.org
You can check out the Github repo here :)
It isn’t gas efficient since users don’t claim their rewards in the form of an airdrop, instead, the contract loops through all the users and automatically sends rewards.
It’s easier to code and it gives a better user experience but is way more expensive.
Also, funnily enough, the unstake tokens function has a reentrancy attack vulnerability (Github contributors might’ve fixed the problem by now).
This was my first full-stack DeFi project, while it was definitely very frustrating, I did learn a lot. I will be building more things over the summer :)
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