CeFi and DeFi must have a battle? No, more likely to fuse

The biggest hotspot in the industry recently is the theft of the well-known DeFi (decentralized finance) product Lendf, with a loss of nearly 25 million US dollars.

What is quite dramatic is that after the efforts of the team and many supporters, the hacker returned the stolen funds in full, and the team is already working on returning the investors' funds.

The return of huge amounts of stolen funds is very rare in the history of hacking theft. For investors and the team, this is a very good ending. For DeFi, the negative impact of theft is also minimized.

DeFi security issues are frequent. There are already opinions that DeFi is developing too fast, should we press the pause button to calm down, and some people question whether the current development path of DeFi is going astray.

RenrenBit CMO Zi Cen even put forward a sharp point of view that "DeFi first needs to prove that it is not a dose of poison".

This article attempts to start from the problems faced by DeFi and CeFi (centralized finance), and explore the feasible path for the better development of blockchain in the financial field.This article only discusses from the perspective of user-side development.

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Safety is the foundation of everything, and financial products that cannot guarantee safety are doomed to fail.

DeFi is known as the Holy Grail of the public chain for its innovation and the extremely high imagination space derived from innovation.

However, from the bZx flash loan incident in February, to the MakerDAO liquidation incident in March, and the attacks on uniswap and Lendf in April, the trust established by DeFi in the hearts of users has been weakened time and time again.

The security issues of DeFi have been widely questioned, and people have to wonder, can DeFi really become the Holy Grail?

Regarding the weakening of user trust, the key indicator is the reduction in the number of locked ETH. From February 18th to February 19th, when the flash loan event broke out, the total amount of ETH locked in DeFi dropped by 5.8%, and the locked ETH decreased by 7.8% in the following week.

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Image source: Alethio EthStats DeFi Research Report

The foundation established by countless participants may collapse across the board due to the outbreak of several risk events.

After Lendf's funds were recovered, someone in the group asked Gulu, the founder of Bihu, who put several million in Lendf, would he continue to invest after Lendf reopened? Gulu replied: "This question needs to be thought about in the dead of night."

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• experience problem

Over the years, the blockchain has been criticized for performance issues. Bitcoin has completely eliminated the possibility of becoming an electronic cash due to performance issues. Due to performance issues in Ethereum, the development of DAPP has been half-dead, and the number of users is pitiful.

To put it bluntly, the experience of using the blockchain is still very poor, and it is difficult for DeFi to break through the shackles of the underlying public chain. There is a huge gap between the use experience and CeFi.

Experience not only refers to slow speed and cumbersome operation, but also includes losses caused to users due to performance problems.

On March 12th, the cryptocurrency plummeted and the Ethereum network was congested, which caused a delay in the price feed of the MakerDAO oracle machine, and tens of thousands of ETH were auctioned off at a price of 0 yuan. Not only makes Maker's balance sheet difficult to balance, but also causes heavy losses to users (of course Maker is also trying to solve the problem).

It is no exaggeration to say that the core factor restricting the development of the blockchain is still the problem of experience. The poor experience makes it difficult for the blockchain to acquire customers on a large scale, and it can only struggle in a narrow circle.

The killer application that the industry is eager for is impossible to realize under the existing infrastructure.The so-called killer application must be at least "available". With the current disabled state of the blockchain, it is impossible to achieve large-scale application.

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• Moral Hazard

The moral hazard of CeFi is the most criticized by the public.The most successful application exchange in the industry has long faced accusations of sky-high listing fees, black-box operations, misappropriation of user funds, futures pin insertion, malicious running, and fancy cutting of leeks, etc., but the exchange has little room for defense, and some have been caught the current.

Because of the opacity of CeFi, it is extremely difficult to prove innocence. The reason why users choose them is not because they believe that they will not do evil (in fact, most users may think that they will definitely do evil), but because they are really easy to use, have relatively high security, and are strong and have the willingness/ability to cover the bottom line.

technical risk

• technical risk

Compared with the "young" DeFi, CeFi has experienced more theft incidents.

Taking the bitcoin theft incident as an example, Mentougou, which accounted for 80% of the bitcoin transaction volume in 2014, declared bankruptcy and the number of stolen coins was as high as 744,000, which was a severe blow to the bitcoin ecology. Even now, the industry is still worried about when the remaining 140,000 bitcoins in Mentougou will hit the market.

According to incomplete statistics, more than 100 million bitcoins have been stolen from exchanges over the years. In addition to Mentougou, Bitstamp, Poloniex, Bitfinex, Youbit, Binance and many other well-known exchanges have been stolen, and the continuous occurrence of theft is constantly testing the confidence of users in the industry.

The only good thing is that most of the above-mentioned thefts with large losses and wide-ranging impacts have borne the losses by themselves and did not harm the interests of users.

regulatory risk

• regulatory risk

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DeFi (Decentralized Finance) is decentralized finance, and its ideal state is completely decentralized, that is, completely decentralized. In the recent heated discussions in the Chinese DeFi community, there are not a few people who hold DeFi should be fully decentralized.

Brother Qu has no objection to complete decentralization, and he also recognizes its charm and imagination, but he always feels that something is wrong.

Let's take a look at what the DeFi project parties want to achieve? If you follow the discussions in the DeFi community, you can simply summarize the following conclusions:

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• Decentralization and more users

For a completely decentralized project, it is very challenging to acquire more users. Not every project is Bitcoin, and Brother Qu has not seen too many successful cases in this regard.

Taking a step back, is it feasible to decentralize the protocol and centralize the operation? Of course it is feasible. Centralized operations are more suitable for market competition and have obvious advantages in acquiring more users.

But there is a question, if the contract of Lendf was stolen this time, should the development team be held responsible? If you use decentralization to excuse yourself, but the operation is indeed centralized, and the team does have great rights, how to solve it?

This is Zi Cen"Zi Cen: DeFi first needs to prove that it is not a poison"Proposed in: "Who will bear the financial security responsibility of the open source agreement?

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• More users at your own risk

Some voices in the discussions in the DeFi community believe that in order for DeFi to achieve a clear division of rights and responsibilities, the team should not bear the risks arising from the user's use of the agreement, but should fully disclose the risks, and the users should bear the risks themselves. There are also two types of risk-taking, whoever uses it and whoever benefits.

The implicit meaning of this point of view is that the protocol is open source, and users should read the code by themselves and find the loopholes in the protocol by themselves. If you can’t find it, sorry, it’s your own problem. It is not uncommon to ask users to look at the code themselves in discussions in the DeFi community in recent days.

Frankly speaking, if this is the case, it is impossible for DeFi to acquire more users.This is not C-side thinking at all. If you think about it from a commercial point of view, this is simply not commercially literate.

There will definitely be people who talk about the basic protocols of the Internet. Those protocols can get huge users, why can't we? But you have to be clear about how many of the more than 4 billion Internet users in the world are directly exposed to these protocols. Ordinary users will only use mature products packaged in computers/mobile phones.

Are these agreements really for ordinary users? In fact they are for developers, and not all developers.

If your product is aimed at the C-side, but requires users to look at the code by themselves and take their own risks, how incredible it is. Project parties with this idea, please expand B-end users and let more project teams use your agreement, this is what you should do.

Let those who have the ability to read the code read the code, let those who can take the risk take the risk,Forcing ordinary users to bear the burden that they cannot bear, how can there be users?

Even from the perspective of risk and return, users have to bear the risk of losing all their funds for a little profit, and users will only vote with their feet.

What if the development team is required to take the risk?

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If DeFi wants to develop on the C side, it still needs to solve its own security problems.

Regarding how DeFi can improve security, the community has also discussed many methods, such as joint multiple security agencies to conduct regular code audits; be more cautious when accessing external assets; buy insurance for assets; establish a risk reserve fund; and establish an agreement Develop standards so that protocols can standardize composition, etc.

Continuously improve security through a variety of methods, and use long-term safe operation to gain user trust. This is a reliable way to gain users on the C side. While many ways are less decentralized,If your business belongs to the commercial category, it should be done in accordance with the basic laws of business. Providing users with safe and reliable services and gaining user trust are the basic laws of business.

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5. The development trend of CeFi and DeFi

If the time is extended, Brother Qu believes that the integration of CeFi and DeFi will be a more likely trend. In the past two days, MakerDAO founder Christensen expressed similar views. Christensen believes:

This point of view may explain why Maker DAO introduced USDC, a centralized stablecoin, as collateral in March. Maker DAO is obviously starting from the perspective of solving problems, rather than sticking to decentralization.

"Exchange public chain, gimmick or revolution? ""Exchange public chain, gimmick or revolution? "A similar view was expressed in . Based on what he observed at the time, Brother Ou believed that:If centralization and decentralization are two ends of a line, centralization is trying to move toward the middle.

CeFi has long faced trust issues such as black-box operations and opacity. In addition, the continuous development of DeFi has put strong pressure on CeFi, so CeFi is also seeking changes.

Taking the public chains of the three major exchanges as an example, all of them have taken DeFi as a key development direction without exception. Binance Chain focuses on DEX, and Binance has also invested in many DeFi teams; OKChain regards DEX, DeFi, and smart contracts as key development directions, and its attempt to DeFi is obvious; Huobi is the most important for DeFi, not only investing in DeFi teams , and released the ERC 20 version of the Bitcoin anchor currency HBTC to lay out the DeFi scene, and the key development direction revealed by Huobi Chain is only one DeFi.

There is no doubt that CeFi is seeking a more open and transparent financial ecology through DeFi, and the integration of CeFi, which has a large number of users and assets, and DeFi will likely create an extremely splendid financial ecology.

In the last district, imagine what will happen when the fusion of CeFi and DeFi happens?

If Huobi uses a lending protocol to build decentralized financial management and lending services, how much room for imagination will there be? (As mentioned above, B-end institutions are users who have the ability to understand the code and take risks. Their use of the agreement means taking risks, and it also helps the agreement to be more secure)

If products developed based on various DeFi protocols can be directly used on exchanges such as Huobi, what does it mean for the DeFi ecosystem?

What would happen if this idea came true?

You will find that there is no boundary between centralization and decentralization. Users and funds of the centralized system can seamlessly switch to the decentralized system. This behavior will prompt the rapid explosion of the decentralized system, forming a huge, full of Vibrant ecology. Even if the decentralized system cannot seamlessly switch back to the centralized system, does it still matter if we already have such a huge ecosystem?

Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.

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Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.