Brief responses to two USV Ethereum Critiques

“Is Ethereum the AOL of Crypto?” by Albert Wenger

The gist of Albert’s post is that one area of activity on Ethereum, Decentralized Finance (or “Open Finance” if you prefer) may be circularly dependent on a small segment of the Ethereum community for both its funding and its users. There are two arguments there, which I’ll do my best to steelman:

1. Is DeFi dependent on Ethereum for funding?

Albert’s first argument goes like this: DeFi has been a success for Ethereum so far. However, if it is the case that most DeFi companies are being financed “by Ethereum”, then it may create a circular dependency that could be undone by some adverse event, similar to how the dot-com bust undid AOL. For instance, if most DeFi companies are being funded by large ETH holders selling ETH, and those companies were to fail, this could lower the price of ETH. This in turn would mean there is less funding available for new DeFi companies, meaning less success, meaning a lower ETH price, and on and on.

  • When a DeFi project has its own token. I assume the point here is that a project with its own token is financially dependent on the price of that token, which we assume might be correlated with the price of ETH. Such a project might also simply hold a lot of ETH.
  • When a DeFi project is financially supported by organizations or people with large holdings of ETH (e.g. ConsenSys, which he calls out specifically).
  • 4 have their own token (MakerDAO, Synthetix, Bancor, Kyber)
  • 8 have raised VC money (MakerDAO, Compound, Synthetix, dYdX, Uniswap, Set, Dharma, wBTC (via Kyber), Bancor, and Kyber)
  • 1 raised money from ConsenSys (Nuo)

2. Is DeFi dependent on a small circular economy of users?

Separate from the AOL analogy, Albert is getting at a deeper question: is it dangerous that so much of DeFi is “self-referential” within Ethereum?

Source: Alethio (link)

“Some Thoughts on Crypto” by Fred Wilson

Fred’s piece is a bit lighter, and has only a few remarks about Ethereum.

Source: Electric Capital (link). Includes both protocol and ecosystem devs, including dapps.

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