Robert Leshner, the CEO and co-founder of Compound Labs, Inc., a software development firm behind the Compound Finance protocol, took to Twitter on Wednesday, June 15, giving his two cents on the state of DeFi and why there should be better transparency.
The DeFi Liquidity Crisis
His concern for DeFi results from UST’s fall, the Celsius Network’s liquidity crisis, and rumors of Three Arrow Capital (3AC) insolvency.
Earlier this week, Celsius Network, the regulated crypto-focused company where users earn high yields on leading crypto assets, including Bitcoin and Ethereum, announced that it was suspending withdrawals. Meanwhile, 3AC could collapse after failing to respond to a $5 million margin call on a $1 billion loan.
Responding to these developments, Robert says the absence of transparency is why DeFi protocols are folding or risk falling, unable to meet their liquidity thresholds, causing needless pain to users. In his view, this is the time for the sphere to have more transparency:
I became a DeFi founder to create a more transparent, autonomous, and safer financial system. Watching the implosion of UST, Celsius, 3AC, and (hopefully not) more, all of which are opaque and trust-based, reaffirms the need for *Decentralized Finance* more than ever.
As the crypto market remains dicey, Leshner predicts more projects to crash, heaping pressure on prices and drawing scrutiny from regulators.
It will be recalled that Do Kwon, the founder of Terraform Labs, the company behind Terra and UST, also predicted the fall of 95 percent of DeFi companies shortly before his company’s death spiral.
Will COMP Survive DeFi’s Purge?
Despite the harsh market conditions, some supporters are confident that the decentralized money market protocol will pull through. Most of them are buoyant, pointing at Compound Finance’s prioritization of sustainability.
The Compound Finance protocol offers lenders a ballpark of four percent in APY, a deviation from most aggressive liquidity mining programs whose yields can be in triple digits.
Besides transparency, it should be noted that DeFi protocols are also exposed to smart contract flaws. In October 2021, following an upgrade, a bug distributed thousands of COMP to addresses. The smart contract fault saw Compound lose over $92 million of COMP.
- defi general image: Photo by Shubham Dhage on Unsplash