{"id":6153,"date":"2021-02-19T13:47:28","date_gmt":"2021-02-19T13:47:28","guid":{"rendered":"https:\/\/newmoneyreview.com\/?p=6153"},"modified":"2021-03-04T10:30:12","modified_gmt":"2021-03-04T10:30:12","slug":"defi-is-centralised-after-all","status":"publish","type":"post","link":"https:\/\/newmoneyreview.com\/index.php\/2021\/02\/19\/defi-is-centralised-after-all\/","title":{"rendered":"DeFi is centralised after all"},"content":{"rendered":"<p>The major promise of DeFi is decentralisation. But activity is now shifting to a wholly centralised platform.<\/p>\n<p>To an outsider, there are many incomprehensible things about the expanding <a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/08\/defi-craze-intensifies\/\">DeFi<\/a> craze: from algorithms named after <a href=\"https:\/\/sushiswap.fi\/\">Japanese food<\/a> or <a href=\"https:\/\/pancakeswap.finance\/\">pancakes<\/a>, to <a href=\"https:\/\/makerdao.com\/en\/whitepaper\/#abstract\">lending projects involving several different tokens with complex interdependencies<\/a>, to <a href=\"https:\/\/cryptobriefing.com\/50-million-lost-the-top-19-defi-cryptocurrency-hacks-2020\/\">bugs in protocols that leave users exposed to hacks<\/a>.<\/p>\n<p>But there\u2019s one thing DeFi users presumably take for granted\u2014that the networks they rely on to <a href=\"https:\/\/newmoneyreview.com\/index.php\/2021\/02\/09\/st-louis-fed-highlights-defi-promise\/\">lend and borrow, issue securities and manage money<\/a> are decentralised.<\/p>\n<p>DeFi&#8217;s primary selling point is that it can remove unnecessary intermediation and costs.<\/p>\n<p>In theory, \u201cDeFi can create an immutable and highly interoperable financial system with unprecedented transparency, equal access rights, and little need for custodians, central clearing houses, or escrow services, as most of these roles can be assumed by \u2018smart contracts\u2019,\u201d Fabian Sch\u00e4r of the University of Basel said <a href=\"https:\/\/research.stlouisfed.org\/publications\/review\/2021\/02\/05\/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets\">in a paper published by the St. Louis Federal Reserve earlier this month<\/a>.<\/p>\n<p>Yet after a sharp recent rise in ethereum transaction fees, which has rendered many DeFi projects unviable\u2014people have been facing transaction charges of over $100 just to send a single DeFi token\u2014an increasing share of DeFi activity is moving to a network that\u2019s anything but decentralised: Binance Smart Chain (BSC), run by cryptocurrency exchange Binance.<\/p>\n<p>Over the last week, BSC has regularly seen more transactions than ethereum, for example <a href=\"https:\/\/cryptopotato.com\/binance-smart-chain-daily-transactions-now-70-more-than-ethereums\/\">recording 2.12 million DeFi transactions on February 17, compared to 1.26 million on ethereum<\/a>.<\/p>\n<p>And Binance\u2019s native token, BNB, has risen sharply in the last few days to become the third-largest cryptocurrency in terms of market value.<\/p>\n<p>At $278 per token on February 19, BNB had more than doubled in price in 48 hours.<\/p>\n<p>BNB is used within the Binance exchange ecosystem to offer users trading fee discounts, as well as to pay for transactions and for making in-store purchases.<\/p>\n<p>More importantly for DeFi, BNB can be \u2018staked\u2019 on the Binance Smart Chain to earn money. And <a href=\"https:\/\/www.bsc.news\/post\/binance-and-pancakeswap-announce-bnb-staking-and-reward-pools\">Binance has been airdropping (seeding) new DeFi projects on<\/a> its own Smart Chain to help get them off the ground.<\/p>\n<p>For example, the case of PancakeSwap, a new DeFi project running on BSC, the exchange offered $20,000 in BNB tokens to all those willing to stake BNB for CAKE tokens.<\/p>\n<p>CAKE has since taken off in price, with a single token up more than 1200% in February alone.<\/p>\n<p>If the shift away from ethereum continues, the whole DeFi system could end up heavily dependent on one entity: Binance, <a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/12\/10\/binance-chief-says-crypto-storage-puts-off-users\/\">which reportedly made over $1bn in profit last year<\/a>.<\/p>\n<blockquote><p>\u201cBNB is exposed to greater catastrophic downside risk\u201d<\/p><\/blockquote>\n<p><a href=\"https:\/\/www.cryptoeq.io\/corereports\/binancecoin-abridged\">According to analysts at CryptoEQ<\/a>, a cryptocurrency analysis and rating agency, Binance\u2019s BNB is an entirely centralised token.<\/p>\n<p>\u201cBinance has already demonstrated questionable character on several occasions when dealing with BNB and customer\u2019s funds,\u201d CryptoEQ said.<\/p>\n<p>\u201cBNB is exposed to greater catastrophic downside risk due to greater than 80% of BNB being either owned or custodied by Binance.\u201d<\/p>\n<p>After Binance launched its operations in 2017, the firm\u00a0<a href=\"https:\/\/www.cryptopolitan.com\/where-is-binance-headquarters-located\/\">changed its head office several times<\/a>, reportedly moving between China, Japan, Hong Kong and Malta,\u00a0<a href=\"https:\/\/www.cryptopolitan.com\/where-is-binance-headquarters-located\/\">some say in an attempt to head off regulatory scrutiny<\/a>.<\/p>\n<p>In the past, Binance clients have been able to sign up without any anti-money-laundering or other formal identity checks.<\/p>\n<p>Although Binance is now registered in the Cayman Islands,\u00a0<a href=\"https:\/\/www.binance.com\/en\/terms\">its website is still cagy about the exact location of its activities and services<\/a>, and to whose, if any regulations those activities would be subject.<\/p>\n<p>\u201cThey purposefully incorporate in jurisdictions renowned for lax anti-money-laundering enforcement and tell their employees not to put Binance on LinkedIn biographies,\u201d<a href=\"https:\/\/twitter.com\/ofnumbers\/status\/1329154253055782913\">\u00a0Tim Swanson, head of market intelligence at Clearmatics, said in November<\/a>.<\/p>\n<blockquote><p>\u201cIt&#8217;s been scammers scamming scammers all the way down\u201d<\/p><\/blockquote>\n<p>Some DeFi market participants are shocked at the shift in activity from ethereum to Binance.<\/p>\n<p>\u201cI didn&#8217;t work my ass off for four years to help spread the word about ethereum to watch a centralised scam chain be promoted as if it&#8217;s something to compare ethereum to,\u201d Anthony Sassano, co-founder of DeFi research site EthHUB, <a href=\"https:\/\/twitter.com\/sassal0x\/status\/1362577239905239040\">said yesterday<\/a>.<\/p>\n<p>Others are more scathing about the decentralised finance movement as a whole.<\/p>\n<p>\u201cDeFi as it&#8217;s actually played out 100% warrants being dismissive,\u201d cryptocurrency sceptic David Gerard <a href=\"https:\/\/twitter.com\/davidgerard\/status\/1360218367307755520\">said on February 12<\/a>.<\/p>\n<p>\u201cIt&#8217;s been scammers scamming scammers all the way down\u2014with hilariously incompetent security\u2014and all the good stuff is potential.\u201d<\/p>\n<p><em><a href=\"http:\/\/eepurl.com\/du6eTr\">Sign up here<\/a> for the New Money Review newsletter<\/em><\/p>\n<p><em><a href=\"https:\/\/blubrry.com\/newmoneyreview\/\">Click here<\/a> for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes<\/em><\/p>\n<p><span style=\"text-decoration: underline;\">Related content from <em>New Money Review<\/em><\/span><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2021\/02\/09\/st-louis-fed-highlights-defi-promise\/\">St. Louis Fed highlights DeFi promise<\/a><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/08\/defi-craze-intensifies\/\">DeFi craze intensifies<\/a><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/09\/14\/what-defi-needs-to-succeed\/\">What DeFi needs to succeed<\/a><\/p>\n<p><a href=\"https:\/\/newmoneyreview.com\/index.php\/2020\/03\/12\/makerdao-goes-bust-threatening-ethereum\/\">Ethereum collapse makes MakerDAO insolvent<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The major promise of DeFi is decentralisation. But activity is now shifting to a wholly centralised platform. To an outsider, there are many incomprehensible things about the expanding DeFi craze: [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":6152,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1013,1012,1053,1014,1011],"tags":[1461,1550,1103],"class_list":{"0":"post-6153","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-account","8":"category-exchange","9":"category-featured-1","10":"category-payment","11":"category-value","12":"tag-binance","13":"tag-defi","14":"tag-ethereum"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>DeFi is centralised after all - New Money Review<\/title>\n<meta name=\"description\" content=\"The major promise of DeFi is decentralisation. 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