The DeFi report ‘Why decentralised finance (DeFi) matters and the policy implications’

This post originally appeared on the ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here.

OECD – OCDE report “Why Decentralised Finance (#DeFi) Matters and the Policy Implications”

I admit that I haven’t found time to read the whole 70-page report.

Concerning one reader’s objection to its length, however, I’d say, in general, there are things that should be written in few words, but there are also things that require many words. A theory can be short, but implementations and studies of their effects might not be.

For the former, there is the beautiful E=mc^2 written by Einstein; for the latter, there are volumes of studies, articles, reports, books, not all of them were wasteful. 

If the whole report is reserved for those few blessed ones, perhaps others could read just the Executive Summary (which, by the way, being 5 full pages, is kind of excessive still, adding to the point Dr. Milly Perry makes)?  

That being beside the point, what I really want to say about DeFi is:

It really doesn’t matter how deep, elaborate and comprehensive the theories and analyses concerning the designs and mechanisms of these DeFi applications are. The truth is that the whole thing is based on one simple reality (versus a theory or analysis):

Those that collateralize their assets in DeFi are doing it because “the number go up,” and those who are borrowing do it also because “the number go up.”

The entire thing has no solid economic foundation whatsoever.

Whether or not it has a solid technological foundation is a different matter. I’d say anything based on Ethereum doesn’t, but that doesn’t mean the entire Blockchain/DLT can’t provide a solid foundation to some form of DeFi.

From a broader perspective, I recommend a reading of “Why it’s too early to get excited about Web3″ By Tim O’Reilly. And allow me to sneak in a few of my own comments.

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