Crypto Selloff Proves Computer Code Leads To ‘Better Outcome’ Than Human Discretion - Arthur Hayes
Pure decentralized finance (DeFi) protocols have fared far better than the more centralized crypto lending and borrowing companies during this bear market. This proves that computer code and transparent standards give “a better outcome,” crypto essayist and former BitMEX CEO Arthur Hayes wrote.
Going into detail on the collapse of crypto hedge fund Three Arrows Capital (3AC), as well as the issues faced by centralized lenders like Celsius (CEL), BlockFi, Babel Finance, and Voyager, Hayes argued that real DeFi platforms have escaped the market turmoil relatively unscathed.
Compound (COMP), Aave (AAVE), and MakerDAO (MKR) were all DeFi protocols that played a part in the drama surrounding Three Arrows Capital, Hayes wrote. He added that with protocols like these, there are “no arbitrary decisions made by individual humans.”
What this means is that loans that do not maintain sufficient collateral ratios will be automatically liquidated by the protocol, without regard for who the borrower is or how good their reputation is.
As an example, Hayes pointed to a recent proposal to change the collateral requirements on Compound. To the Compound protocol, “3AC is just an address with a balance,” he said. “It is not a collection of humans with a certain pedigree that indicates they can and should be trusted to pay back what is owed even when no collateral is required up front.”
“When you remove trust from the equation and rely purely on transparent lending standards executed by impartial computer code, you get a better outcome. This is the lesson to be learned,” he added.
In addition to the DeFi protocols mentioned, Hayes also said that the now-failed algorithmic stablecoin terraUSD (UST) “worked,” and that it was “DeFi to its core.”
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