DeFi
The DeFi ecosystem is just moving water in a bathtub
Key points to remember
- Cardano prioritizes long-term value and reliability over rapid user acquisition in DeFi.
- Hoskinson believes that future adoption of blockchain will be driven by governments and large enterprises.
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The decentralized finance (DeFi) ecosystem is an ever-changing landscape, with the introduction of application-specific blockchains (appchains), layer-2 (L2) blockchains, new virtual machines, and more. In this scenario, users are wondering how blockchains like Cardano can compete with these optimized infrastructures.
Charles Hoskinson, CEO of Input Output Global, said during his participation in Blockchain Rio that Cardano is ensuring that everything that has been built so far preserves and protects the value of the blockchain. To achieve this goal, it is more important to make calculated moves rather than just the classic “move fast, break things.”
“There’s no better example than Bitcoin, which by definition is the worst performing of all cryptocurrencies. There aren’t even smart contracts on Bitcoin right now, right? You can’t issue assets on it. Yet it’s worth over a trillion dollars. Why? Because at the heart of it all, the value proposition of Bitcoin is an unwavering commitment to never violate the principles on which Bitcoin was founded and which have value in the marketplace,” Hoskinson told Crypto Briefing.
He added that in competitive environments, like crypto, teams embrace what they know are mistakes to try to move quickly and capture market share. However, protocols spend the next 10 to 15 years trying to correct these fundamental mistakes.
“JavaScript is the best example of that kind of programming language. It was created in 54 days. We spent two decades fixing that really, really bad language. That’s why we saw the rise of Ruby and TypeScript and all these other things, because JavaScript wasn’t fit for purpose. So that’s what Solana and these other things do: They focus on adoption, user acquisition, speed, and transaction costs. They don’t particularly care if the network goes down. They don’t particularly care if they have to reverse or start over. It’s a mad dash for user acquisition.”
While this works for retail holders looking for short-term gains, it doesn’t last in the long term because “protocols are not businesses,” Hoskinson said. Unlike companies that achieve dominance and can “own people’s protocols,” the same can’t happen in the cryptocurrency space.
“Can you imagine the success of Wi-Fi if it broke down all the time and never worked? Competing protocols would destroy it.” Hoskinson went on to point out that previous platforms and devices, such as Nokia mobile phones, MySpace and Yahoo, had up to a billion users before disappearing or losing their user base significantly.
So Hoskinson isn’t thinking about how to keep up with the competition, but how to preserve what people who trust Cardano signed up for and how to add capabilities without going beyond those fundamentals.
“Roll-ups are a great example of that. With extended UTXO, Cardano’s accounting model, and what we’re doing with Plutus V3, not only can we have them, but we can have best-in-class roll-ups because of the way the system works. It’s much harder to implement them on Ethereum or other things. So while they were first to market with that capability, we’re the best to market with that capability. It’s the same with Hydra. It delivers on the promise of everything that Lightning wanted to do and Plasma wanted to do. Yes, they had them years ago. Now we have them. And over time, it’s going to become best-in-class in terms of technology.”
The Input Output Global CEO then compares Cardano to Apple, saying that Apple has stuck to its winning strategy in its various forays, such as its recent foray into large language models for artificial intelligence. Despite short-term competitive issues due to sticking to its strategy, Apple will become “very strong” in its new ventures over time.
“And you know, another thing I think is unfair is that people have unrealistic expectations for growth. They wonder how Cardano is going to catch up. And that’s like our TVL [total value locked] “The growth is 300% in a year. And people say, ‘Yeah, but it’s not 1,000%. What’s going on?’ It’s like asking whether 300% growth per year is unprecedented compared to what we’ve been saying.”
Reliability and compliance
Hoskinson believes that the next billion users to adopt blockchain technology will come from adoption by governments and large companies such as those on the Fortune 500 list.
“Are the government or Fortune 500 companies really going to care that you spent a billion dollars on marketing and you got all these users? No, they’re going to ask fundamental questions, like control, governance, availability, reliability, and security, because at the end of the day, if they make mistakes, they lose their jobs and they don’t get paid for adopting system A or B.”
So, blockchain adoption is a “long-term game” that Cardano aims to play now, by developing an infrastructure where entities can build without worrying about endangering their current users.
Additionally, when it comes to competitiveness, Hoskinson believes people are relying too much on current applications instead of focusing on what will be useful in 2030. “If you make all these decisions correctly, if your competitors don’t, you’re the only option or the best option. So where does the puck go? How do you get regulated companies into the cryptocurrency space?”
He also highlights the need for proper tools to track blockchain development when it comes to offering products, criticizing the lack of solutions to keep the blockchain ecosystem decentralized.
“The plans are to create real assets, tokenized real estate, this, that, and that. But how do you make that work on a blockchain system? Oh, well, it’ll be on the blockchain, but all the private, personally identifiable information will be owned by a centralized company. OK, so doesn’t that make it a centralized asset? It’s not really a block. You’re going about it the wrong way. So my point is, you have to have a basket of solutions for where this is going to go, because everything else is commoditized.”
Additionally, features such as high throughput are not seen by Hoskinson as differentiators, since every blockchain will eventually be fast, adding that a differentiator would be not being sued for deploying an application without a compliance regime.
“Can Solana deliver this right now? No. Neither can Polygon, Ethereum, or Bitcoin. They haven’t even thought about it because they’re fighting for their DeFi degenerates to move water from one side of the bathtub to the other. We’re not adding water to the bathtub. We’re just moving it from one side to the other, and they’re claiming that’s a huge growth success,” Hoskinson concluded.
In June 2024, Cardano prepared for its Voltaire upgrade, signaling a significant advancement in its blockchain governance as it entered the final phase of its decentralization roadmap.
Earlier in June 2024, Charles Hoskinson expressed his belief that Cardano was undervalued, citing its leadership and upcoming improvements like the Chang Hard Fork and Hydra as catalysts for growth.
In April 2024, Paul Frambot of Morpho Labs suggested that widespread adoption of DeFi would advance through collaborations with fintech companies and centralized exchanges, leveraging new infrastructure like Coinbase.
Back in March, a report from Exponential.fi showed that the DeFi ecosystem was maturing, with a trend toward lower-risk protocols due to Ethereum’s shift to a proof-of-stake model.
In January 2024, Aquarius Loan ushered in a new era for DeFi with its cross-chain lending platform that aims to reduce liquidity fragmentation and empower users through its $ARS token governance model.
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