Cardano (ADA) boss predicts the DeFi bubble will burst, how likely is that to happen?
Cardano founder Charles Hoskinson talks about DeFi in his latest interview. Instead of beating the drum of the democratization of finance, you called it a bubble that is ready to burst, but what is your reasoning for saying this and...
Cardano founder Charles Hoskinson talks about DeFi in his latest interview. Instead of beating the drum of the democratization of finance, you called it a bubble that is ready to burst, but what is your reasoning for saying this and what do you think will take its place?
Gensler says big changes are coming
Decentralized finance, or DeFi, is a general term that refers to financial products and services accessible to anyone. Furthermore, it is a system of financial products written in blockchains that allows buyers, sellers, lenders and borrowers to interact.
It differs from traditional finance, where intermediaries, such as banks or brokerages, act as gatekeepers. And participating requires providing government-issued IDs, such as social security or passport details.
Since the summer of 2020, the volume of DeFi tokens and money locked in DeFi has been growing exponentially. Ethereum is the biggest player of all. But rising stars like Binance Smart Chain and new players like Solana and Terra are gobbling up Ethereum’s market share.
An important consideration is that regulatory oversight is minimal. That may not be for long, though, as SEC Chairman Gary Gensler said big changes are coming. In particular, Gensler said that many projects that label themselves decentralized finance are nothing of the sort. And with “centralized” features, this puts them squarely in the crosshairs of the US securities regulator.
Is DeFi going to crash and burn?
Sharing his observations, Hoskinson said he believes DeFi is in a bubble. Adding that in, it’s no different than what was seen with the ICO mania of 2017. Expanding further, he said that being in a bubble isn’t necessarily harmful.
“BUT THE FACT THAT IT IS IN A BUBBLE DOES NOT NECESSARILY MEAN THAT IT IS IN A BAD SITUATION. IT JUST MEANS THAT PEOPLE RECOGNIZE THAT THERE IS VALUE, BUT THE MARKET IS HAVING A HARD TIME PUTTING A PRICE ON THAT VALUE. “
To support this vision, he spoke of the proliferation of projects, with small teams and low liquidity, worth a billion dollars. To say that there is something fundamentally wrong with this. For him, that’s a sign that the DeFi industry is in decline.
Hoskinson also touched on Gensler’s recent comments, in which he said the SEC is looking for ways to bring regulation into space. How that will turn out is anyone’s guess.
But the big fear is that the SEC will cripple the industry, perhaps forcing projects to track users and requiring identification to participate. So it’s quite possible that DeFi, as we know it, is done for. But with that, something else will take its place. And this next generation of DeFi, as Hoskinson said, is at stake.
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