Thread by @eaglelex_eth

1/The #FTX / #Binance affair of yesterday was a dramatic event for the credibility of the crypto industry

I want to share some views about #CeFi and #DeFi which might appear controversial 🧵

2/Disclaimers:
-My goal is not to make conspiracies concerning the personalities of @cz_binance and @SBF_FTX and their behaviors in this matter. I just want to comment on objective and known facts
-I am a great DeFi supporter

3/Within a niche and mostly unregulated industry as ours, an event like the one of yesterday should not be considered a great surprise

Probably also regulated banks could not have managed a “a bank run” as the one suffered by FTX with their legally required monetary reserves

4/The problem affects the internal organization and the offered services. The pain points of FTX seem mainly related to the relationships with #Alameda, the practice of using native tokens as collateral and the abundance of high risk investments done with customers funds

5/This brings me to my main observations:
-compared to CeFi, DeFi offers transparency in the operations flow and with respect to the managing of funds
- but, as it happened with #Celsius and #3AC, the massive use of DeFi makes these CeFi monsters vulnerable as little lambs

6/We should not simply glorify DeFi's transparency, but also detect practices that in DeFi are simply too risky and which may harm the industry as a whole: it’s quite obvious, but it’s not acceptable to make enormous borrows against tokens with low liquidity in lending markets

7/This of course is particularly true for CeFi, but I would argue that it is true in general. As an example, just recall the mid bull cycle collapse of May 2021, which was caused by an excessive leveraged market or the Anchor disaster on Terra

8/the industry should promote internal CeFi regulation on transparency, organizational aspects and risk management, but at the same time be mindful about DeFi's weaknesses. If not used consciously, the use of DeFi will continue to generate devastating events

9/CeFi should not play with customers' funds in DeFi, but I think that there is something more to learn and it affects how DeFi protocols are shaped. The future of the industry and DeFi depends also on the reliability of its technological infrastructure and of its players

10/Freedom and innovation should not encounter obstacles, but the growth of the DeFi ecosystem requires a constant self-assessment and a good amount of constructive criticism