Observation: Will DeFi repeat the mistakes of initial coin offerings?

Editor's Note: This article comes fromGolden Finance, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Golden Finance

Golden Finance

, reprinted by Odaily with authorization.ETHThe use of decentralized finance (DeFi) is growing significantly, attracting more and more investors and widespread attention from the cryptocurrency community, including Wall Street, and it is also leading this wave of cryptocurrency bull market. This seems to make people see the prosperity of the initial coin offering (ICO) three years ago, so will DeFi repeat the mistakes of the initial coin offering?

First, we see that there are many similarities between the two. It is very obvious that both DeFi and ICOs are trying to "decentralize" existing business models, and both are building applications and communities through token speculation. They mainly choose some existing centralized business models in the market, and then decentralize them, all of which guide the early network effects through speculative token price appreciation. Moreover, they all use the rhetoric of "a decentralized version of a certain platform or a certain project" to attract people to enter and build the earliest community, creating a large amount of liquidity and obtaining economic benefits.

Then, we cannot deny that both of them have had some impact on the Ethereum blockchain, such as rising transaction fees, network congestion, etc., but these impacts have also stimulated developers to research and invest in Ethereum scaling solutions. Today’s Ethereum network is still researching scalability with the emergence of many competitors focused on network scalability, and these expansion projects may accelerate development.

It’s also worth mentioning that the emergence of DeFi and ICOs has decreased

The circulating supply of the token. Since participation in DeFi and ICO projects requires the purchase and locking of ETH or other tokens based on the Ethereum blockchain, the circulation of ETH in the market will decrease, a trend that usually supports price appreciation. Initial coin offering projects generally accept ETH as an investment token, and then provide new tokens to investors, and the project party holds a large amount of ETH; DeFi also provides investors with newly minted tokens in exchange for ETH or other Tokens based on the Ethereum blockchain.

We can see that the boom in initial coin offerings started “slowly” from long-term venture capital funds, and then attracted a large number of retail funds to enter the market and accelerate development. It can be said that the prosperity of the initial coin offering market began with venture capital companies and angels Investors injected funds into the Ethereum ICO project, and then as more and more retail investors in the crypto community began to invest, technological innovation and early investment success provided support for many subsequent ICO projects. In the same way, the DeFi boom also started with those VC firms and angel investors who focused on early-stage investment, and now a large number of projects in this field have launched and attracted more "fast-moving" funds.

However, from a regulatory point of view, there are obvious differences between the two models of ICO and DeFi. Most initial coin offerings will be recognized as securities sales by regulators, while DeFi tokens are considered an "exchange", which means that tokens issued by some DeFi projects may not be recognized by regulators as securities, or are not subject to the securities laws. Therefore, DeFi may be more beneficial to ETH than ICOs, not only that, but ETH can be recycled quickly between projects due to investors "farming" new tokens.