A seasoned crypto hedge fund with $4.5 billion worth of assets under its management is asserting the superiority of decentralized finance (DeFi) ecosystems.
In a new letter penned by CEO Dan Morehead and other executives, crypto hedge fund Pantera Capital says that the DeFi sector is head and shoulders above centralized finance (CeFi) due to its transparency and “rock-solid” foundations.
According to Pantera Capital, DeFi protocols lack the subjectivity and human fallibility that is present in traditional transactions conducted by CeFi systems.
“DeFi, unlike opaque centralized finance, is not an empty house of cards. Its foundations are rock-solid, rooted in immutable code, and totally transparent. In some cases, DeFi removes human subjectivity entirely from, e.g., financing decisions.
Parties agreeing to conduct transactions openly and transparently on the blockchain – as opposed to backroom deals by opaque, human (i.e., fallible), potentially interest-conflicted financial actors – is the vision we should be striving for, rather than clinging on to inefficient centralized financial systems.
DeFi has never ‘sinned.’ The rules of engagement are coded into the smart contract. You do not need to trust a counterparty who may be incentivized to twist the truth, nor rely on trust to engage in financial transactions. The code just executes what both parties agreed to.”
The crypto hedge fund also says that the transparency of DeFi platforms help protect investors from CeFi as centralized entities are often forced to use DeFi for their loans, putting their finances out in the open. Pantera references the collapse of lending platform Celsius, which had hundreds of millions of dollars of loans that could be tracked on-chain at the time of its bankruptcy.
“You could say that DeFi, due to its discipline for over-collateralization, protects you from CeFi. Celsius was forced to prioritize paying down its $400+ million DeFi loans on Maker, Aave, and Compound to prevent its collateral from being liquidated.
There is no ability to ‘re-structure’/renege on smart contracts. In DeFi ‘a deal is a deal’ – you can’t back out. All centralized finance companies are forced by smart contracts to pay back the DeFi protocols.”
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