Disclaimer: This article is intended to convey more market information and does not constitute any investment advice. The opinions expressed are those of the author and do not represent the official position of Mars Finance.
Xiaobian: Remember to pay attention
Source: BitFinance
DeFi emerged in 2018 and gradually came to everyone’s attention at the beginning of 2019. By the end of 2019, DEFI had become a hot topic in the currency circle.
Do you really know DeFi?
DeFi stands for Decentralized Finance, the Chinese name of which is decentralized Finance. Is a decentralized protocol for building an open financial system that aims to make finance accessible to anyone, anywhere, anytime.
To put it bluntly, DeFi generally refers to crypto assets, financial smart contracts and protocols built on smart contract platforms such as Ethereum. Including: currency issuance, currency trading, lending, asset trading, investment and financing, etc.
We usually talk about lightning networks, decentralized exchanges, online lending platforms, insurance platforms, decentralized wallets, etc., all belong to the category of DeFi.
Compared with traditional finance, DeFi has the advantages of a wider range of global financial services, affordable cross-border payments, improved privacy and security, anti-censorship transactions, and easy to understand operations.
DeFi and decentralized lending
It can be said that DeFi has a wide range of applications, covering almost the main areas of traditional finance. But among these applications, the one that has made the biggest waves is undoubtedly the decentralized lending project, which is DeFi’s second step after cryptocurrency.
Decentralized lending, where platforms act as lenders but funds are stored on smart contracts. The main features are: mortgage based on digital assets, instant transaction settlement through automation, and excess mortgage mode instead of credit review.
When ICO was eliminated by the market and STO threshold was high, DeFi decentralized lending naturally became the preferred financing method in the coin circle.
The DeFi was arbitraged into a crisis of confidence
However, the recent high-profile theft of assets of bZx (flash loan), the DeFi loan agreement, has put DeFi in a crisis of confidence.
On Feb. 15 and Feb. 18, bZx, the DeFi lending protocol, was hacked twice, arbitragingnearly $1 million in less than 15 seconds. The crisis of confidence in the DeFi ecosystem erupted when the value of the assets locked in the DeFi Ecosystem fell by $142 million within hours after the second attack.
It should be noted that this is not the theft of assets by hackers as we usually say, but the attacker directly took advantage of the “contract loophole” of bZx to carry out real arbitrage through aboveboard trading, which can be called “making money” by his own strength.
The first time, the attacker successfully “arbitraged” $350,000 worth of tokens at zero cost of capital by calling the smart contract mechanism back and forth between five DeFi products. The second time, the same method was used again to successfully snare $640,000 worth of tokens.
DeFi, which is committed to solving the trust risk of centralized finance, has been arbitraged due to its own security problems, and the assets it has locked have been lost. This has also raised concerns and distrust on DeFi’s ecological issues.
In addition to the arbitrage, what is more criticized by everyone is that after the incident, the developer of bZx used the emergency management permission to successfully lock part of the attacker’s earnings. This approach may help users recover some losses, but it violates the principle of decentralization and exacerbates the crisis of confidence.
For DeFi, true decentralisation is the only way to win a slice of the financial pie.
