Why has DeFi violated the basic principles of decentralization?
As we have mentioned in the previous article, Decentralized Finance (DeFi) is a revolution in the financial sector and crypto industry, and it tries to solve many problems regarding traditional finance. This article focuses on how the cryptocurrency market, even if decentralized, is not risk-free and whether it is possible to regulate decentralized finance.
The months of May and June have been devastating and have jeopardized the entire crypto industry. The collapse of Terra Luna and the subsequent bankruptcy of Celsius Network has sparked a wave of fear, uncertainty, and doubt across the whole sector, commonly known as FUD. Many users and supporters of both saw their savings burn.
But let’s take a step back and understand if the DeFi really means “decentralization”.
What are the risks of Defi protocols?
The innovation carried forward by the DeFi ecosystems is the interaction among multiple parties without a centralized intermediary or a central authority.
Decentralized Finance has a lot of benefits and solves particular issues featuring traditional financial systems. The biggest problem that DeFi solves is that it removes the mediators or third-party, reducing the problem of trust. It replaces a mediator with a smart contract, pieces of code able to execute transactions, which is entirely automated and requires fewer fees.
But DeFi is so much more; it also increases accessibility so unbanked people can operate on DeFi; they only need a stable internet connection.
Indeed DeFi solves many problems, but it also has its downsides regarding technological, financial, and…