Crypto was supposed to liberate people from the oppression of the traditional financial system, but this has not happened so far. Mostly because the world of cryptocurrencies is still dominated by ideas of crypto anarchism rather than crypto mutualism as it should be. What can be done to turn DeFi into a real financial empowerment tool, according to Camille Meulien, CEO of Yellow Capital.
The emergence of decentralized finance (DeFi) and the surge of crypto markets heralded what many believed would be a groundbreaking financial revolution.
Enthusiasts envisioned a future where individuals could emancipate themselves from the constraints of traditional banking systems, accessing financial services that were open, transparent, and verifiable by anyone.
The promise was alluring: a democratized financial ecosystem free from the control of centralized institutions.
However, as with many revolutionary concepts, the practical implementation has proven to be far more nuanced and complicated.
The initial vision of crypto anarchy is in stark contrast with the present state of the cryptocurrency market, where issues such as power imbalances, market manipulation, and re-centralization present substantial obstacles to the original ideals.
Let’s see what went wrong and how do we fight back to make DeFi what it is supposed to become.
The Promise of DeFi and Crypto Anarchism
Crypto-anarchy: A vision of digital freedom
Crypto-anarchy champions privacy and economic liberty. It uses cryptography to secure online communications. Tim May coined the term in 1988, well before Bitcoin's 2008 debut.
May's manifesto was bold. He wrote: "Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions."
DeFi later emerged as a game-changer. It offered a way to dodge traditional banks. Anyone with the internet could access financial services. No middlemen needed.
The pitch was simple. Lower fees. Faster transactions. Finance for all.
Blockchain tech underpinned DeFi. It promised transparency and security. Every transaction was out in the open. You didn't need to trust anyone.
This tech shift aimed to deliver on crypto-anarchy's dream. A free and fair financial system for everyone.
The Harsh Reality: Market Manipulation and Centralization
The Persistence of Traditional Finance Flaws
Despite the revolutionary promise of Bitcoin and the subsequent rise of numerous other cryptocurrencies over the past 15 years, the crypto market and decentralized finance (DeFi) have not been immune to the same flaws that plague traditional finance and neo-capitalism.
Whales and Market Manipulation
Despite its egalitarian ideals, the crypto market has been susceptible to significant manipulation. Large holders, known as whales, wield the power to influence market prices drastically. By executing large trades, they can create volatility that smaller investors cannot withstand. These manipulations often lead to substantial losses for small investors, who lack the resources to respond swiftly to sudden market fluctuations.
Consider Bitcoin, the flagship cryptocurrency. Documented instances of price manipulation by whales demonstrate how large-scale buy or sell orders can drastically impact market prices. The involvement of influential companies like MicroStrategy and Tesla in Bitcoin investments has highlighted how powerful entities can sway market sentiment and drive price movements, often leaving smaller investors in precarious positions.
Elon Musk exemplifies how influential figures can impact the crypto market. His tweets have caused significant price swings in cryptocurrencies like Bitcoin and Dogecoin. Initially playful interactions with the crypto community have evolved into demonstrations of how a single individual can manipulate market dynamics, raising concerns about the market's stability and fairness.
Media Influence and Public Perception
In the crypto world, as in traditional media, the concentration of power and money can distort public perception. Media outlets, influenced by their financiers, can shape narratives that serve specific interests. For instance, portraying certain cryptocurrencies as superior investments can drive herd behavior among retail investors, often leading to speculative bubbles.
Institutional Involvement
As cryptocurrencies gained mainstream attention, traditional financial institutions, banks, and governments began entering the market. This influx of institutional money brought both legitimacy and centralization. Drawing a parallel to the early days of the internet—initially seen as a free and open space—the control eventually shifted to major corporations like Google, Apple, Facebook, Amazon, and Microsoft (GAFAM). Similarly, the crypto market is witnessing a consolidation of power where large institutions exert significant influence, potentially undermining the original decentralized ethos.
The Need for Regulation
While regulations seem necessary to protect investors and users, there have been numerous instances where crypto companies have emptied accounts and disappeared. Mass adoption of crypto banking will not occur without increased security measures. On a larger scale, economies cannot rely and function with this level of risk.
Recent regulations in the US and Europe aim to address these issues. For example, the European Union’s Markets in Crypto-Assets (MiCA) regulation seeks to create a harmonized regulatory framework to protect investors and ensure market integrity. While these regulations offer benefits such as increased security and investor protection, they also pose challenges, potentially stifling innovation and compromising the decentralized nature of the market.
Short-Term Oriented Investment
The market’s obsession with quick returns discourages investment in projects with long-term visions and real ambitions. This short-term orientation can hinder the development of transformative technologies and applications within the crypto space. Projects that require years to realize their full potential struggle to attract the necessary investment, potentially stifling innovation and progress in the industry.
Balancing Freedom and Security
The challenge lies in maintaining freedom and decentralization while limiting risks and fostering a thriving and dynamic market. Establishing a regulatory framework that protects investors without compromising the core principles of decentralization is crucial.
By addressing these complexities and challenges, the crypto market can strive towards a balanced and equitable financial ecosystem, preserving its revolutionary potential while ensuring security and fairness for all participants.
Fighting Back: Strategies for a Decentralized Future
Independent Media and Information
To counteract the influence of concentrated power in the crypto media, independent and unbiased information sources are crucial. Independent media can play a pivotal role in educating the public by providing objective analyses of the crypto market and promoting a deeper understanding of the technology and its potential. By presenting fact-based reporting and in-depth research, independent media can help investors make informed decisions and reduce the impact of sensationalism and market manipulation.
There is a pressing need for independent researchers and journalists to conduct thorough analyses of crypto projects. By synthesizing complex information and presenting it in an intelligible form, they can make it easier for the public to understand and evaluate the true potential and risks of different projects. Detailed and unbiased research can expose scams and highlight promising innovations, guiding investors towards more responsible and informed investment decisions.
Wise Investment Choices
Investors need to adopt a discerning approach to their investment choices. Rather than chasing short-term gains, they should evaluate the long-term potential and vision of projects. Supporting companies and projects that adhere to the principles of decentralization, transparency, and inclusivity can help foster a more equitable crypto ecosystem. This involves looking beyond hype and marketing, focusing instead on the fundamental value and sustainability of projects. Creating New Narratives
The vision of Tim May's crypto-capitalism, characterized by a free-market approach, is evident in today's crypto market. However, an alternative vision, crypto mutualism, offers a different path. Crypto mutualism is an ideological framework that envisions a decentralized economy built on the principles of mutualism. Mutualism advocates for a society where individuals and cooperative groups exchange products and services based on mutual benefit.
For the crypto market to be widely adopted and beneficial to economies, it needs to be seen not just as a speculative stock market but as a real currency enabling the purchase of services and items, real-world assets. This shift requires a change in narrative and public perception.
Crypto Mutualism
Crypto mutualism is shaking up digital finance. It's mixing old-school mutualism with new blockchain tech. The idea? To change how we think about money and business.
At its heart, crypto mutualism is all about working together without middlemen. Blockchain makes this possible. People can trade directly with each other, cutting out banks and other go-betweens.
Shared ownership is a big deal here. Think of DAOs - they're like companies, but run by all the members. Everyone gets a say in decisions. It's a whole new way of doing business.
This system puts communities first. It's not just about making money, but about helping everyone in the group. The goal is to share resources more fairly.
One cool feature is mutual credit. It's like lending, but based on trust between people. Often, there's no interest charged. This could help folks who can't get loans from banks.
Reframing the Purpose of Crypto
Evading taxes and institutional control cannot be the sole aim of the crypto economy, as this would undermine societal structures and potentially accelerate societal collapse. Creating and supporting new narratives that challenge the status quo is essential. Instead of viewing crypto solely as a speculative investment, it should be seen as a tool for financial inclusion and empowerment. Promoting stories that highlight how crypto can address real-world problems, such as providing financial services to the unbanked or enabling transparent charitable donations, can shift the focus towards the positive impact of the technology.
By fostering a more informed, equitable, and community-focused crypto ecosystem, the original ideals of decentralization and financial freedom can be more fully realized.