Roleplay of a policy maker spitballing about DeFi — PART 2

Citizens are no longer the sheep of yesterday.

The rise of zero fee trading platforms like Robinhood, Zerodha etc are bringing normies into the market like never before. The ability to come together into forums like WSB, Telegram groups ensure a market coordination and a decent ability to power the wisdom of the crowds like never before.

They will see yields. They will look at the discrepancy of the formal financial system vs DeFi. They will start to wonder, yo, bitch.. I’ve to go through multiple rounds of KYC verification and get my ass on the line to get a bank account. Once I get the bank account, I get only a bitch ass 0.5%. Whereas the local thug putting a finger up my ass makes 40% a year in USDT ! I gotta get a piece of that action.

It’s bad enough that it’s hard to control the narrative of the system like before due to FB and Twitter. The way the digital economy has flourished has already made it a question mark about how I should value it for economic indicators like GDP etc. So many jobs like the gig economy coming in.

Weakened grip of state over capital flow

Now, I gotta deal with these protocols dictating the flow of capital too. What happens when these protocols create a global arms race for yield. This capital is not going into the production of goods and services for a country. It’s headed to a clusterfuck of pools like Curve, Compound, MakerDAO from which the ejaculate is your yield.. These pools lend to each other chasing yield with the collateral of its users creating a huge systemic risk in the time of liquidation. What happens if a major pool is hacked and how does that trigger the domino effect ? Not pretty and I don’t want to be a part of that conversation when my taxpayers get fucked in a situation like that..

When synthetics of national stocks become more convenient to trade than national platforms coz we put in regulations and laws to prevent retail from getting fucked, also in DeFi they have fucking access to F&O without any minimum amount or age, retarded degens. Obviously it becomes a big fucking problem. Here you have CEXes like Gemini, WazirX who will play ball and abide by law to ensure they have fiat onramps and ability to serve customers. What about DeFi ?

When capital goes into these protocols rather than into our share market, municipal bonds, NBFCs etc. Already penetration of capital for the poor is low because of the need for proper credit and identity verification, their lack of a credit history and collateral makes it difficult for the poor to get access to capital or even a bank account. Will the arrival of these protocols starve local banks and NBFCs of enough funds for funding the people at villages, tier 2,3 cities ? I think it’s possible without strict laws coming in. It will exacerbate income inequality

Also what happens in a beaten down market or in a recession, our tools of capital controls will be severely diluted if we don’t put crypto into the category of gold where countries such as Turkey implement restrictions on how much gold a citizen can hold. This is done in order to disincentivize saving in a different currency other than the national currency. Also it is forced to promote immediate consumption of goods and services so that we can fucking grow the economy. Capital controls during a recession allow for funds to be locked within a country so that the funds required to grow the country stays low.

Creating a backchannel where there is no cycle back to the economy is a big problem if not dealt with strictly.

DeFi governance vs national level politics

The advent of the internet has created a rich get richer, poor get poorer especially in terms of culture. American artists and films get a huge amount of traction. But it starves local artists and people from making an equally big enough name on these platforms. Twitter and Facebook moderators are the unspoken curators of social narratives. Their ability to manipulate the feeds and trends shapes national conversation.

What happens if you now let DeFi protocols dominate to such an extent that the largest token holders of a protocol can now come in with enough votes to control how capital flows through certain regions. People may scream muh decentralization but the truth is protocols are not decentralized. Many DeFi protocols have huge whales that dominate voting, they’re built on chains like Binance which are pseudo decentralized..

There’re a lot of loopholes that can be exploited to control the direction of a protocol. Bitcoin maxi and devs with their sock puppets on social media dominate the bitcoin narrative. The community may control the direction but the big question is how do you save the community from itself ?

Google, the search engine which was meant to evolve itself into something that gives you the most accurate answer to any question in the world has now devolved itself into giving politically correct answers because of the political leanings of its devs and policies. In the face of it being publicly listed as a profit making entity ? Its goal is to be fucking accurate and come up with innovative products, enforce its fucking corporate policies and make fucking money, but here we see it going in a totally different direction to the land of the woke. What can prevent it from happening to these DeFi protocols ? We assume that the overall majority will control the direction but how do you prevent the tyranny of the minority from happening as we see proliferating today. How will it affect citizens at a local and national level ?

With their ability to create grants and token holders, they became de facto oligarchs that can dictate the discourse of how capital can be run through countries.

What happens if these platforms dominate the narrative even at the local level hard enough to starve them of capital. Right now it’s just degen yield farming. Add the social layer to these DeFi protocols and you have the ability to create supercharged social change that is beyond the control of elected reps.

If policy makers like me don’t have the foresight to create laws to protect our communities from the advent of these vulture protocols, it can become a big threat to the financial system we have been paid by taxpayers to protect and foster.

FML