Antimatter Stance — DeFi Herd Mentality & Thinking Outside the Box
Herd mentality describes how people can be influenced by their peers to adopt certain behaviors on a largely emotional, rather than rational, basis. This effect is evident when people do what others are doing instead of doing their due diligence or making independent decisions.
What is happening?
The DeFi market is dominated by a few protocols that absorb most of TVL and it is becoming another centralized financial play (But this time the central controller is not the government) People in the community are appreciating and using protocols that are monopolizing in each DeFi subsector and they believe in whatever influencers in the DeFi space say or do. Herd behavior is quite obvious in the current market. It is evident hat most people do not follow the principle of DYOR (do your own research) or learn about DeFi protocols, and just “ape” in following the “DeFi Gods”.
What is the result?
- Consequence of these dynamics is the lack of innovation in DeFi. The so called open market for contribution and participation are not motivated enough. It is very difficult for a DeFi innovation to take off without influential DeFi figures backing the project. Individuals within a herd environment don’t have the required understanding to evaluate a decentralized protocol and it’s potential.
- TVL has become a parameter to determine the success of a DeFi protocol. However, financial markets are of dynamic nature, where money is always in motion and thus not “locked” value. The current TVL philosophy in DeFi rewards unefficient use of assets. TVL can be applied as useful parameter in some DeFi Use Cases, but not all. Generally the meaningfullness is rarely questioned.
Some critical ideas to think:
- DeFi had it’s first spring in a bear market, but DeFi has never experienced a bear market. In the bear market, people are not trading a lot of altcoins, and the borrow-to-trade activities decrease dramatically. It will be interesting to see how swap and lending and borrowing platforms will perform in a bear market.
- Most of the current DeFi mining mechanisms will fail because a lot of these are being supplied by the underlying lending and borrowing marketplace. Interest rates will drop drastically. What other sources can generate yield instead of mining and earning interest on lending and borrowing?
We are tackling the Option market together with some other protocols like Ribbon Finance. Option markets provide the opportunity to earn yield, regardless of the current market conditions. Structured products are the gateway to access these gains.
Currently the Option market in Crypto is not very efficient, there is no real innovation that motivates TradFi to switch to DeFi. Despite this many strategies can be played out to generate income such as Covered call and Put Selling strategies. The earnings from Option market are not too dependent on DeFi swaps or lending and borrowing and won’t be affected too much if crypto winter comes.