Ethereum (ETH) is rapidly becoming a decentralized finance (DeFi) network, and DeFi feels quite similar to traditional finance in important ways. What does this mean for the network, the community, and the future of Ethereum?
The rise of DeFi
I remember clearly when, a year or two ago, the Ethereum community collectively made fun of the fact that most applications built on the nascent EOS and TRON platforms were gambling applications.
By contrast, we took great pride in the “real” things being built on Ethereum, from DAOs to stable coins to satellites, asteroid mining, and space exploration. There was an understandable tendency not to take the other platforms seriously because they lacked serious, mature use cases.
Fast forward a couple of years and Ethereum, too, has become a casino, albeit one by a different name: DeFi. Short for Decentralized Finance, DeFi refers to financial applications, from stable coins to exchanges to lending platforms, that are built on smart contracts.
As of today, 24 of the top 25 Ethereum dapps are DeFi applications.(1) These applications have driven an explosion in transaction volume and average gas prices over the past few weeks, making it difficult, slow, and expensive to use the network.
While these applications may someday evolve into more mature, sustainable products and platforms, at the moment nearly all of them feel like gambling. Tokens with no intrinsic value, many without sound economic design, are suddenly issued out of nowhere, explode in value overnight, then collapse just as quickly.
Those who have a lot of chips on the table, are well-connected, in the know, or just lucky, can make huge sums of money in this market, but there is someone less fortunate on the other side of each of these zero-sum trades. To describe the situation charitably, it’s distasteful and unsustainable.