US treasury and Tornado Cash, put DeFi sector in check

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Strength of one (bitcoin, it has addresses on the OFAC SDN list for years and they have never had censorship at the protocol level, consequence: NONE, weaknesses of others (Ethereum at the network level has been touched and the protocols on it are quite censored). Although we can label the OFAC ban on Tornado Cash as unconstitutional, it has happened and in between there are us, confused users, without much information. With few explanations and deprived of a service that we can consider as a right: Privacy.

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Aave, Lido, Coinbase, Kraken and MakerDAO are sweating to try to get their operations back to normal, comply with the law and above all not be so dependent on an asset that has put them all in check, USDC. The US treasure found a hidden crack in a seamless infrastructure (DeFi), where it may continue to instigate other countries and other networks with censorship, blackmail and laws for those who want to hide/mislead the entrance and outflow of capital with dubious origin and use according to them.

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Today MakerDAO is the largest holder of USDC in the entire ecosystem, since it backs its stable currency DAI with 3.56 Billion dollars (33.9% of the DAI guarantee), a very worrying situation due to the fact that it greatly weakens the entire MKR infrastructure. This dependency and a simple denunciation/prohibition by an establishment outside the crypto environment can shake the entire industry towards the greatest digital financial disaster of all time.

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I want to make a small stop here and explain myself well. Imagine what effect a debacle would have on the market that blocked all ETH within Aave-type lending protocols, for example (there are several more) used as collateral. This exercise is very simple to do. If you have identified (there are plenty of tools for this) the most leveraged wallets in ETH within Aave is as simple as sending them a little ETH through Tronado Cash. At that moment in Aave all the alarms go off and those addresses are immediately blocked, someone (or many) who already know this move in advance shorts against ETH, they spread the word of the seriousness of the problem, and a snowball effect that makes you laugh at Niagara Falls in the face of the cascade of liquidations in ETH that are going to take place. As a consequence, ETH goes to $0 in a matter of hours, and the few who were licking LUNA’s wounds have just been auctioned off (holders, long traders, users of defi protocols under the ETH network and with ETH as an asset to seed.

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Thanks to the risk that MakerDAO has run, in DeFi now the debate is on which is the best stable coin to work with, which one represents greater decentralization, but at the same time enjoys good liquidity to be operational and create a market. The answer is still very imprecise, since outside of USDC and USDT we have little margin with great qualities, backing and guarantees. RAI, LUSD, Frax, venus or soon the stablecoin of Aave and Curve can occupy that place of honor.

I identify in this organized chaos of the market on the construction side, a perfect momentum for leaders, entrepreneurs or opportunists (type CZ) to also have the opportunity to create one of the most impressive businesses in the entire crypto industry, “launch one stablecoin that rules them all”, i.e. a stable but interoperable bitcoin, or a stablecoin backed by traditional financial sector bonds (although this option carries little weight given that countries that approve it must be DeFi friendly) , seeking for them a clear economic reset). Today achieving all this seems like a dream to me and tomorrow it could be a reality. That’s the speed of technology when it starts from 4 lines of open source and from the most brilliant minds right now in terms of creation capacity.

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Summarizing and to bring a reality that is an open secret, every day the theory that blockchain networks cease to be infrastructures for the development and location of dAAps, pivoting towards the first trials to be nation states. A much more sophisticated standard and closer to the reality that we need, as a community and in my case, as a producer of profitability within the DeFi environment is gaining more and more strength. These nation states may be able to create their own stable coin under the mining of their native token (in each network their own, ETH, SOL, CELO, DOT, …) and that this stable behaves and fluctuates depending on how the nation state does, without further ado. With this step intangible values are provided, but necessary for the institutional and regulated money to flow smoothly and above all so that if you want to censor something again, you have a non-fiducial corporate backing.

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