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Is Decentralized Finance Decentralized?

The idea of ‘decentralized finance’ or defi, has hooked itself deep into the minds of crypto-bros and tech investors everywhere.

But is ‘defi’ really decentralized? Is it a true revolution, or just another VC-backed exit liquidity scam that preys on retail noobs?

If you’re a Bitcoiner, you understand that no layer-one blockchain can scale to billions of people. 

If we optimize a blockchain for scalability and transaction speed, it loses its security and decentralization. Solana and Ethereum are perfect examples of this phenomenon, the former suffers from constant downtime, and the latter is a broken protocol with fees higher than traditional banks.

Many Bitcoiners argue that the L1 or ‘base-chain’ of Bitcoin was never meant to scale to the masses.

Bitcoiners believe that ‘defi’ should scale in layers. Scaling in layers makes sense, given the inefficiencies of L1 blockchain tech(transaction speed, fees…etc). 

We see this layered scaling theory forming in real-time. Technologies like the Lightning Network and Liquid Sidechain are forging ahead. These layers are so valuable because they benefit from the security and decentralization of the Bitcoin L1 base chain. 

‘Defi’ isn’t a staking protocol with 300,000% APY. That’s a Ponzi scheme, a 3y old is clever enough to realize that.

One Bitcoin user summarized the situation well:

“Sometimes you hear someone say something like “there is more bitcoin on ethereum than there is on lightning” or some other such talking point…what they don’t realize is that is not because ethereum is great but because bitcoin is. WBTC is something that is using bitcoin, not bitcoin using ethereum. Just like when you buy Bitcoin on coinbase that is coinbase using Bitcoin. Every single market everywhere is going to build a way to use bitcoin in their market place because Bitcoin is the point. WBTC is obviously worse than owning the real thing just like owning it on coinbase.”

True ‘defi’ will be built on top of the Bitcoin L1. In fact, there is already a thriving and diverse ecosystem of projects built on the Lightning Network.

Microlancer.io, a ‘Fiverr’ that uses bitcoin lightning payments, is one example. Impervious.ai, a P2P application browser built on Bitcoin, also looks promising. LNmarkets delivers cash-final derivatives trading using Lightning. Platforms like hodlhodl.com and Bisq.network are set to disrupt custodial exchanges with growing markets and liquidity for P2P trades. Despite massive critique and scepticism, projects such as Stacks, RGB or MintLayer promise to unleash Bitcoin’s full potential through smart-contracts and decentralized apps.

Value For Value

On top of all this, the Value-for-Value revolution (only possible in a meaningful way with Lightning) will dramatically change the dynamics of internet monetization. Why does Youtube, the mega monopoly only give breadcrumbs to the creators? How much would creators earn if paid directly by advertisers and users without a censoring middleman?

The Bitcoin L1 is the foundation of the future. What we build on top of this network will change the internet and the world as we know it. 

Although altcoin and NFT projects will cost a lot of ignorant beginners a lot of money initially, I believe that they are ultimately good for Bitcoin because they draw more users into the ecosystem. But in the end, everyone will use Bitcoin’s application layers simply because they are more trustworthy.

What do you think? Let us know below or on Twitter.

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