Cointime

  • BTC $17223.27 -0.03 %
  • ETH $1282.37 0.00 %
  • BCH $112.00 0.00 %
  • SOL $13.69 0.00 %
  • XRP $0.39 -0.05 %
  • BNB $289.40 -0.07 %

Binance Launches Industry Recovery Fund, but It Goes Against Crypto's Principles

Ignacio de Gregorio· 8 min read

An International Monetary Fund for Crypto.

The bailor to all insolvent Crypto projects.

A glorified copycat of all that’s wrong in traditional finance, but actually even worse.

The Crypto industry, the industry born to take power away from the few and hand it to the many, may very well become a hideous copy of the industry whose sins gave birth to Crypto.

It may seem like an extreme point of view, but for Crypto to succeed we want to be extremists in the idea of what boundaries Crypto must not cross.

And we are about to cross one.

Decentralization is multi-faceted

My mom always tells me that everything in excessive quantities is bad, no matter what it is.

And I agree.

Being dogmatic about something makes you probably wrong

In fact, I always try to remain as unbiased as possible with regard to Crypto.

For instance, I put into value Bitcoin’s good things and also understand its — actual — shortcomings.

And same applies to Ethereum.

For that matter, maximalists on both sides attack me for it, ironically calling me a Bitcoin maxi or an Ethereum maxi (maxis are people who follow certain Crypto projects in an almost religious/dogmatic approach).

It’s funny how I’ve been accused of being two completely opposite things at once.

And yet I completely understand why this occurs, as these people aren’t capable of seeing the problems the project they are blindly following has, as their support is more about faith and less about objectivity.

Thus, an attack on “their” project is an attack on them, on their beliefs.

And yet here I am, making an effort to see through all the noise to explain the innovations coming to Crypto, as well as being sufficiently critical to understand what needs to be improved.

It’s as simple as that.

But certainly, there’s something about Crypto that really makes me feel like a maxi, and that’s decentralization.

Centralization defeats the purpose of blockchains

The problem with the majority of Crypto people is that they don’t really understand how blockchain works.

To them, blockchain is just a buzzword being thrown out at people outside the space to sound interesting and legit.

And yet, these same people are quick to applaud events that centralize Crypto, like the one we are about to discuss today, because the moment people are losing money, it isn’t about Crypto or blockchain anymore, it’s about them.

About their survival.

And yet, the reasoning is quite simple.

Centralization defeats the purpose of blockchains. A centralized blockchain, no matter how scalable, fancy, and multi-featured it is, is still pointless.

Why?

Because a centralized blockchain can never compete with the performance of a centralized system, while sharing a centralized system’s biggest problem, single points of failure.

And then, the “solution” to a rightful problem ends up being a worse implementation than the original problem.

But decentralization isn’t only about the IT architecture of the system, it’s also about decision-making and concentration of power and wealth.

Your system is as decentralized as your most centralized link

When people talk about being decentralized, they are normally talking about the blockchain itself, the architecture.

Why?

Because decentralized architectures are highly secure and difficult to hack, making them the superior technology for storing data with high-security requirements. You can read this article of mine for more detail.

That is certainly important, but there’s another thing that truly decentralized systems offer, and that’s censorship resistance.

You can be super decentralized, like Bitcoin, or decently decentralized like Ethereum, and still not be censorship resistant.

  • In the Bitcoin network, a majority of the hashing rate is owned by a handful of mining companies, some of them being so big they are actually public companies.
  • In the Ethereum network, a majority of the stake is owned by a subset of companies using a centralized, OFAC-compliant MEV-boost known as Flashbots, a fact that is closely approaching Ethereum into becoming a fully-censoring chain.

In other words, in blockchains, censorship resistance depends on those introducing new blocks to the chain, so even though your system may be decentralized at the hardware level, it is far from being decentralized if a few people have the power to decide what transactions do go in and what transactions don’t.

To be fully decentralized, you also have to be decentralized at the protocol level, and few blockchains, if any, have a passing grade on that aspect.

And now, an uber-important centralized player wants to make things worse at a new layer, the decision-making one.

The Binance Recovery Fund

It is no secret that traditional finance players have always a last resort when things go south:

  • In the case of banks, they have central banks to bail them out
  • In the case of countries, they have the International Monetary Fund to bail them out

In other words, if you’re a country or a bank and you f*ck up, these entities have your back unless you are seriously in the mud, like Lehman Brothers was.

Now Binance wants to create a similar concept in Crypto, a recovery fund to prevent disasters like that of FTX from ever happening again.

This seems great, right?

It would be, if it wasn’t for the fact that it goes against Crypto’s principles.

A centralized bank for Crypto

I’ll be honest with you guys, this fund is a euphemism for simply creating a privately-owned, centralized global bank that will provide liquidity to those in need.

The problem?

No private company ever will give you money altruistically, it always has a price.

I’ll be honest with you guys, this fund is a euphemism for simply creating a privately-owned, centralized global bank that will provide liquidity to those in need.

The problem?

No private company ever will give you money altruistically, it always has a price.

And, needless to say, the moment this fund provides you liquidity, they own you.

And the moment ownership is centralized, what does that say about that project? Can it truly claim to be decentralized?

Of course not. And in that case, what’s the point?

As no Crypto protocol or project will ever acknowledge they are centralized, as that would put them in the bullseye of the SEC, possibly inducing their cryptocurrency to be deemed a security, thereby killing it instantly, they are fooling us into believing they are decentralized when they’re not.

So, if no one will ever accept they are centralized, why the h*ll are we taking quick steps toward centralization?

I’ll tell you why, money.

It’s always about money

People in this space love to talk about how differential and disruptive Crypto is — hint, this only is true if decentralized —, how important is Crypto’s role to bank the unbanked and fight for our rights but, the moment their portfolio or their money is on the line, they instantly become open to anything that saves their money, even if that means betray Crypto’s principles.

Saving the world? More about saving my savings.

Because let’s be real. Few in this space are here because they want to have a positive impact in the world.

It’s all about the money.

And people won’t give a second thought to anything compromising the future of this industry (anything that centralizes it, for that matter) as long as they get rich.

Am I implying that CZ, Binance’s CEO, doesn’t care about the future of the industry?

No.

I personally feel that CZ genuinely understands Crypto and wants to make it thrive. But let’s not forget his multi-billion net worth is on the line when it comes to Binance.

It’s impossible for him to be truly unbiased. If that was the case, he would have never proposed a potentially centralized Recovery Fund.

Yes, he opens it to being participated by several companies, but it still centralizes liquidity on a few important players.

But… there’s no other option, as this industry needs a bailor to prevent similar collapses, right?

Of course not!

The answer is actually in front of our own very eyes.

DeFi.

DeFi is, up, running, and unharmed

Why do we need a Recovery fund, if no DeFi protocols have collapsed?

That is, if we all used DeFi instead of CeFi (centralized Crypto companies like FTX or Binance) none of this would have happened.

Why?

Because in DeFi, you won’t ever have to worry about people stealing your funds to gamble them like FTX did, as everything is governed by smart contracts (besides hacks, but that’s another story).

It’s all liquidity pools and market makers providing liquidity to trade pairs so that you can borrow or lend your assets in a peer-to-peer manner.

Sure there’s a lot of risk in DeFi, as innovations like SBTs or validity proofs have still to mature to allow things like creditworthiness or undercollateralized lending, but one thing’s for sure, nobody is going to scam the living sh*t of you like FTX did, because it’s code what’s behind those trades, not greedy humans.

Maybe your risk tolerance doesn’t incentivize you to have a go at DeFi for now.

I get it, because:

  • It sure lacks utility besides getting loans on cryptocurrencies to then automatically stake them for interest.
  • It evidently still needs some sort of traction in real life for DeFi to truly become useful.

But, as JP Morgan has said, if there’s one thing that the FTX collapse has clarified, is that DeFi has a strong value proposition and resilient fundamentals.

That, in my opinion, proves DeFi’s capacity to become the superior alternative to traditional finance.

Thus, let’s forget about recovery funds and let’s start improving self-custody user experiences to democratize that ownership model and remain faithful to the one thing that ascends blockchains above other technologies: decentralization.

All Comments