The debacle of the GameStop scenario has sparked arguments in favor of decentralized finance (DeFi) protocols not too long ago.
Proponents of DeFi protocols have mentioned that the data asymmetry and censorship that resulted in traders shedding their investments would haven’t occurred on DeFi platforms.
Ethereum maximalist and founding father of Mythos Capital, Ryan Adams, took to Twitter to state that Ethereum based mostly DeFi platform, Uniswap, solves the GameStop drawback. His place has sparked arguments as he alleges that neither Bitcoin, Dogecoin, or cryptocurrency change, Binance, might be mentioned to unravel the issue.
What performed out within the GameStop scenario was that the corporate was publicized as the following huge factor on a Reddit group, r/Wallstreetbets. In the following few weeks, the inventory of the corporate grew phenomenally as retail traders flocked into the market. Unknown on the time was the truth that a gaggle of hedge funds had additionally positioned brief orders on the inventory, betting on the demise of the corporate. When the data received out, retail traders stopped promoting their acquired shares main the hedge funds to lose round $19 billion. This turnout led centralized firms to intervene on behalf of the hedge funds, stopping buying and selling of the shares on key exchanges and giving the hedge funds an opportunity to regain a few of their losses.
The present argument is that other than the Ethereum blockchain which presents decentralized finance options, no different outstanding blockchain, together with Bitcoin, solves the issue of regulation, market manipulation, and censorship.
Bitcoin proponents have countered Adams’ tackle the problem. Alex Gladstein in response to the declare said that whereas Bitcoin doesn’t truly ‘repair’ the GameStop drawback, it’s incorrect to say Bitcoin might be stopped by any centralized physique or authorities. “Bitcoin by the way in which doesn’t “repair” GME both however does present an asset that the federal government can’t cease you from buying and selling,” he mentioned within the tweet.
Still pushing his argument, Adams said that Bitcoin might be regulated if governments cease liquidity from flowing into cryptocurrencies exchanges. “The authorities can cease Bitcoin from buying and selling by choking out liquidity on just a few exchanges. Uniswap on Ethereum is unstoppable. If you’re a good friend of democracy and civil liberties, why aren’t you a good friend of DeFi?”
His argument appears to have holes in it as in a similar way, governments may “chock out liquidity” from exchanges providing Ethereum. Also as has been evident in instances the place this has been tried, resembling Nigeria, merchants simply diverted to utilizing peer-to-peer trades to avoid the ban.
Notably, DeFi presents a strategy to clear up the GameStop drawback as a key attribute of blockchains is the open ledger the place all transactions are recorded and are open for scrutiny. Every place in a market – each lengthy and brief – might be identified in DeFi protocols resulting in much less data asymmetry. Add to that the uncensorable nature of decentralized blockchains and you’ve got a robust instrument to fight manipulation by exterior forces out there.