Short answer is yes and the reason is quite simple:
Stablecoins backed by the United States dollars account for a significant percentage of decentralized finance value flow and also it's debt.
This means, effectively, that DeFi is built atop the USD.
This is a very vulnerable place to be. A reality that should scare true decentralized finance enthusiasts.
We love the stablecoins adoption for the attention to crypto it brings, but we ought not forget that these tokens are, at the end of the day, centralized coins extending the dominance of the centralized financial system crypto was meant to replace.
The ideal DeFi
If the USD crashes tomorrow, DeFi goes down with it. The people that wanted to avoid the flaws of TradFi are still exposed to them, probably in a more risk-on manner.
That's not a very marketable solution now, is it?
The ideal DeFi is one where the assets that dominate value flow are completely decentralized.
From issuance to usability and governance, all of it must follow a decentralized design that ensure effective sovereignty for not only the assets, but also the platform it serves.
USDT and USDC account for roughly 85% of total stablecoin supply, a dominance that has barely eroded despite a proliferation of new issuers. Inside DeFi, 84% of outstanding DeFi debt is denominated in USDC, USDT, USDS, DAI and among those, fiat-backed stablecoins dominate supply at about 93%, even those that aren't directly backed by fiat, are still ultimately tracking fiat currencies like the USD.
Stability requires diversity
A single asset or market should never account for a significant pull on DeFi as an ecosystem.
For sovereignty to remain, the market has to shift towards a more distributed value flow capture.
Stability assets like stablecoins have to be less tied to fiat currencies and more openly tracking several assets, currencies and markets.
This way, no single economy can have a strong impact on the capital that flows through the market.
Right now, we're faced with a market reality where USD-stablecoins with varying layers of centralization dominate DeFi.
It isn't enough that the DeFi infrastructure layer is decentralized, the assets that carry primary value around need to also be meaningfully decentralized and not directly or indirectly exposed, to a significant extent, to any single currency or market, only then can effective sovereignty and stability be achieved!
Posted Using INLEO
