Aug 27, 2020 10:26 UTC
Aug 27, 2020 at 10:26 UTC
To accomplish its goal of financial disruption, DeFi requires a devolved rating protocol. Evai.io aims to deliver such a system.
Decentralized finance (DeFi) is nowadays measured blockchain’s killer app—responsible for releasing billions in dormant potential. Nevertheless, as with any investment boom, the sector has its winners & losers. Deprived of an unbiased, fit for purpose rating system embodying the decentralized nature of the sector it’s evaluating, DeFi is doomed to fall for the same trappings as financial divisions before it.
DeFi is the crypto industry’s response to the borrowing, lending, & other such interest-bearing practices of traditional finance. But contrasting more conventional investment vehicles, DeFi is decentralized. This means that no central authority panels the flow of capital or data, decreasing counterparty risks by removing intermediaries & reducing inefficiencies, costs, & efficiently negating the need for trust. In theory, DeFi is a paradise that has apprehended the minds of financial libertarians & crypto evangelists alike. The reality, however, is a little murkier.
DeFi’s Budding Pains
In a slight over 2 years, the DeFi sector has full-fledged from just $4 in total value locked (TVL) to around $6.7 billion in TVL, according to data from DeFi Pulse.
In further words, throughout the sector’s short existence, investors have chosen to place a multibillion-dollar bet on DeFi by locking up value in various borrowing, lending, & investment schemes — resulting in an implausible 167 million percent growth. Even further, mind-blowing is the element that more than $6 billion of that value was affixed to the sector in 2020 alone.
As such, the DeFi boom is every so often analogized to the ICO rush circa 2017. Both observed enormous volatility & upside gain but simultaneously became overwhelmed by scams, frauds, & lackluster project coding—rendering attack vectors for bad actors. The two sectors have correspondingly bore tokens with little intrinsic value, with only 10% of the 5,000+ cryptocurrencies created during the ICO bubble possessing a live use case — & then there’s DeFi.
For the nascent sector, the bulk of its growth has been ushered by “yield farming,” an incentivization program initiated to drive liquidity to DeFi platforms. By rewarding borrowing & lending via tokens listed on their platforms & thus encouraging the locking in of additional value — these projects have propelled prices for specific tokens beyond reasonable valuation.
A prime example of this comes from yEarn Finance’s platform, a yield aggregator that hunts down the best lending pools to maximize interest. yEarn Finance’s YFI, a token used to reward liquidity providers, has catapulted some 44,017 percent since its inception back in July, climbing from $34 to a peak of around $15,800 in August per data from Coingecko. All this even though Yearn. Finance founder, Andre Cronje admitted to the token’s lack of value.
“We have released YFI, a completely valueless 0 supply token,” said Cronje. “We re-iterate it has 0 financial value. There is no pre-mine, there is no sale, no, you cannot buy it, no, it won’t be on uniswap, no, there won’t be an auction. We don’t have any of it.“
Nevertheless, looking to capitalize on the success of DeFi and, in particular, yield farming, other tokens have propped up, capturing the eagerness of captivated investors.
Yam is one such token.
Confessing to being completely unaudited, Yam describes itself as a “minimally viable monetary experiment.”
Instantly after launch on August 11, investors poured their millions into Yam, inflating its market cap from zero to $60 million in a mere two days. But fewer than 48 hours after shipping, its founders pulled the plug on the project after discovering a bug. Yam’s entire market cap evaporated in a while after, along with millions in investor capital.
It’s not just dubious projects & pumps & dumps either; fake tokens are plentiful in DeFi as well. To top it all off, cheers to unaudited coding & loopholes exploits & hacks are just as prolific.
But DeFi isn’t all doom & gloom, after all, it hasn’t combined an $8 trillion market cap from speculation unaccompanied. Still, there’s no contradicting, much akin to many of its projects & tokens, that the DeFi ecosystem is in desperate need of a sector-wide audit.
EVAI: Evaluating DeFi
Despite DeFi horror stories & growing pains, many believe that the sector could go on to disrupt the financial industry entirely.
DeFi encapsulates the best of cryptocurrency utility, enabling wealth creation via borrowing, lending & staking while leaning on decentralization to avoid the need to confer trust, data, & capital, over to intermediaries & centralized institutions. Minimal fees, higher yields, global liquidity, & the elimination of counterparty risk, are excellent bait to lure investors in — traditional or otherwise. But DeFi’s financial utopia isn’t possible without an appropriate rating system.
The problem remains that any such rating system cannot — & should not — be centralized.
Several rating platforms already exist, claiming to assess DeFi & other crypto-centric assets equitably & impartially. But no matter the intention, human beings are inherently biased. It would help if you individually looked as far back as the Great Recession of 2008 to comprehend the pitfalls of a centralized rating system.
The chief instigators for the Great Recession came in the form of dishonest credit rating agencies who dressed up hugely risky asset-backed securities — known as debt obligations (CDOs) — as top-rated investments without appraising the quality, or risk, of their underlying assets.
The absenteeism of investor knowledge, & indeed information, coupled with trust & reliance in a careless & biased rating system, brought the financial system down single-handedly. In hindsight, the catastrophe that sparked the subsequent recession could have been avoided had a reliable, impartial, & decentralized rating system been in place.
The teachings of the Great recession act as some of the chief motivations behind Evai, a decentralized cryptocurrency rating platform. Directing to instill legitimacy into the cryptocurrency sector, Evai eradicates cognitive bias & bias by leaning on a six-factor rating model. The model, dubbed “The Bridge,” borrows learnings from the academic research of the University of Brighton professor of economics & Evai co-founder, Prof. Andros Gregoriou.
The Bridge evaluates cryptocurrency assets based on several criteria including their inclination toward systematic risk, liquidity, expected profitability, rate of change in asset price, aggregate demand, & investment — all to determine the optimum exposure for a particular asset.
The Bridge likewise makes use of artificial intelligence (AI) & machine learning to both determine the ideal investment allocation as well as evolve & self-correct the assessment system. Working in unification with this is the EVAI token a proof of work-based ERC-20 standard token used to incentivize holders to subsidize ideas & market expertise to the ever-expanding development of the Evai rating platform.
Evacuating from centralization is critical to an effective rating system. To do so, Evai remains entirely independent & doesn’t receive any funding or collect fees from rated projects.
As DeFi strides in the direction of the disruption of the traditional finance sector, investors necessitate a reliable, impartial, & decentralized rating platform to navigate to the most suitable investments — Evai aims to provide such a platform. Find out more at evai.io.