Synchronized Descent of Centralized Crypto
Centralization. Is it in our nature? I mean, how come we so willingly give power away to someone else, someone we don’t even know. Decentralization is chaos, they say, the chaos that can’t be controlled and where nobody’s safe.
Indirect (representative) democracy was a necessary response to the rise of largely populated sovereign countries. And, in theory, an elegant solution. The issue, however, is that we accepted centralized power in all aspects of our lives even when there is no need for us to step back.
Intermediaries everywhere - we stopped doing things ourselves. A vast specter of available services made us - I dare say - lazy. It’s easier to let someone else think about it. Nobody’s schooling you - most of us don’t have enough time, energy, or knowledge to break the cycle so we all accept this as a normality.
Centralization isn’t a viable modus operandi. It’s only a safety net and a very flawed one. Total control always has an expiration date. The same thing happened to cryptocurrencies - you can’t force control on something that’s decentralized at its very core. You can, but you’ll inevitably pay the price.
What exactly happened to crypto?
Good question. Not as inconclusive as it might seem. In 2009, Satoshi Nakamoto presented us with a great gift - Bitcoin. Now, whatever you might think of BTC, its concept is revolutionary and different from anything we’ve ever seen in finance before.
‘’A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,’’ was said in the manifest.
Peer-to-peer. Sent directly. No financial institutions. And we did what? Created a bunch of indirect intermediaries and centralized institutions with an excuse of enabling crypto to people. Exactly the opposite of what Satoshi wanted.
Terra was never decentralized
It’s not new that crypto projects rise and fall, we’ve seen it a thousand times. 2022, nevertheless, brought us something unusual - the crash of the giants with a horrifying domino effect and it officially started with Terra.
Stablecoins can be super useful and they are important for the crypto ecosystem - they serve as a fiat-crypto bridge, and can be a great hedging mechanism on a volatile market. Regardless, fiat-pegged stablecoins concretely, in my opinion, are equally flawed as fiat. And Terra’s UST failed us, too.
‘’Like many stablecoins, UST was pegged at a 1-to-1 ratio with the dollar. Minting one new UST required "burning," or destroying, one LUNA. This structure allowed for arbitrage opportunities that were key to maintaining the peg: users could always swap one LUNA for UST and vice versa at a guaranteed price of $1, regardless of the market price of either token at the time.’’
It already doesn’t sound good, right? Well, it ended with a loss of approx. 60 billion dollars. A self-regulated, truly decentralized system should never fail like that. Terra 2.0 was meant to redeem its predecessor's mistakes, but it looks like a too little, too late situation.
If there is one person or a group of people that can cause such an event by holding all power, then I’m sorry but, your project is everything but decentralized. Even if there was no ill will or an actual market manipulation attempt - the concept failed itself.
Celsius claimed banks are bad; were they any different?
Onto the other disturbing scandal in the world of crypto - Celsius. Terra pushed the buttons and dominos started falling - shortly after, Celsius froze withdrawals and now has filed for bankruptcy. Terra’s maneuver influenced exchanges, hedge funds, and other lenders - people started to ditch crypto and all these crypto intermediaries were faced with an enormous problem.
Celsius’ additional problem was stETH - which the company had previously pledged as collateral against the loan on Aave. They paid it back, though (Celsius sent over $80 million USDC to Aave), along with other DeFi projects Celsius owed money to.
Though it’s a good sign, it still leaves devastating damage behind: ''Celsius has fully repaid its debts to decentralized finance (DeFi) protocols, getting hands on over $1 billion worth of cryptocurrencies pledged as collateral on the platforms,'' Forbes reports.
It’s a headache, just reading that. Again, the issue is not a poor decision, it’s the possibility of making a poor decision per se. Nobody should have the power to bring down the entire crypto community.
True DeFi lives on
Now, DeFi isn’t perfect. In the grand scheme of things, it’s a relatively new concept with so much to learn. Yet, DeFi has something of great value - trustlessness. No intermediaries. No ifs and mays. Just the execution of smart contracts.
The issue here is to recognize a truly decentralized project. And truth be told, real DeFi projects are more-or-less simple. You trade with a peer, the blockchain doesn’t care who you are as long as the smart contract is fulfilled, and that’s it. Nobody’s hurt, and no one takes anyone’s money.
There’s an unnecessary veil of mystery over DeFi and people outside of crypto don’t seem to get the concept but by raising awareness and educating people around us, there’s a good chance of crypto getting back on its feet.
Ethereum, DeFi’s champion, seems to be the only one to carry Satoshi’s torch. Their team says: ‘’DeFi is [...] an alternative to a system that's opaque, tightly controlled, and held together by decades-old infrastructure and processes. It gives you control and visibility over your money. It gives you exposure to global markets and alternatives to your local currency or banking options.’’ And DeFi can be slow, even vulnerable, but it never fails you like CeFi does every day.
Rise of self-directed wealth management
We live in uncertain, turbulent times. But instead of looking at the current situation fearfully, try to look at it as an opportunity. Yes, you need to learn a lot and do research like crazy. But it’s your money. Even if you lose some, it will still be your mistake.
We’ve seen that intermediaries we so eagerly lean on are far from perfect. There is no magic wand and they know it. I’m not saying you should headlessly go all in - put your and your family’s basic needs first, and if there’s something left afterward, then great, give yourself a shot.
There are many ways of managing your wealth and sure, it’s great to hear all opinions, pieces of advice, and insightful information. That’s only a bonus! But keep in mind that you should always be the final decision-maker, and DeFi can help you a great deal on that journey.
It’s 2022. You don’t need a room full of economists to tell you what to do with your money. Play smart, read, watch, listen, and don’t ever doubt yourself. The decentralized rebellion has just begun, there’s still plenty of time to side with the winner.
Disclaimer: The information provided in this post is not legal, accounting, or financial advice. The information should not be construed as investment or trading advice and is not meant to be a solicitation or recommendation to buy, sell, or hold any cryptocurrencies.