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SBF
@SBF_FTX
Replying to
@SBF_FTX
14) Alright so on to the second section: DeFi. Agree that AMMs are great for new listings. Only sorta agree about best-ex requiring DeFi: that's only true because of farming. When DeFi runs out of value to airdrop, the liquidity dries up.
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SBF
@SBF_FTX
15) Disagree on UX. I agree there are advantages to it -- but net it's still way worse than CeFi. (Though this might change!) But then to the last point -- DeFi cross-margin. That point is correct. And it's fucking huge.
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SBF
@SBF_FTX
16) I think what really drilled this into me was: (a) cTokens as collateral on FTX (e.g. cUSDT): double dipping. (b) Compound/Aave + Uni/Sushi --> native margin trading
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SBF
@SBF_FTX
17) Composability means that you can seamlessly transfer positions between projects. You can provide liquidity on an AMM, take the LP token and use it as collateral on a borrow/lending book, then use that to trade on a DEX, etc. *That* is what CeFi is missing.
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SBF
@SBF_FTX
18) On-chain means that exchanges aren't gating cross margin anymore. But what we're seeing now is just the beginning. What you *really* want is: (a) PBs on-chain (b) LP tokens from PB account can be used elsewhere (c) PB has access to funds, but SC means it can't steal.
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SBF
@SBF_FTX
19) There's a core missing primitive there, which is really the core primitive to all of DeFi. That primitive is a Pool. And Pools are coming to Serum in the next week.
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SBF
@SBF_FTX
20) But there's also a problem with how DeFi is currently using composability. Rather than borrow/lending + AMM --> leverage, DeFi is stacking Yield. This seems great: more yield!
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SBF
@SBF_FTX
21) But... Well, first, why are people giving yield? To inflate their TVL. 4x dipping means *all* TVL is inflated and fake. They're paying the community yield to trick itself into thinking they should use their products, whose valuations come from... ...yield.
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SBF
@SBF_FTX
22) But, also, there's systematic risk. And it's big. See, things don't *look* super leveraged. Unless you look harder. Anything that uses aTokens or cTokens blows out if Aave/Compound do. Anything that uses Uni tokens crashes if *either* side does.
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SBF
@SBF_FTX
23) Everywhere you look it's expensive to borrow USD and cheap to borrow crypto -- meaning everyone's leveraged in the same direction. Long. And remember, all the usage and valuations and TVL come from yield, which comes from altcoin prices, which come from... ...usage and TVL
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SBF
@SBF_FTX
24) The problem is that *each* platform has risk engines, of a sort. But they treat composed tokens and native ones the same -- even though composed tokens add in the risk of other positions. So what happens if shitcoins crash too much? LPs crash. Sell-side liqs on lending.
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SBF
@SBF_FTX
Replying to
@SBF_FTX
25) TVL crashes. Alts crash more. Everyone's pulling their capital -- half of which is ETH, so it crashes too. This further crashes LPs and altcoins. Recurse. It's like 3/12, but instead of one contract on one platform, it's all of DeFi composed.
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