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How DeFi Can Avoid the Irrelevance of P2P Lending and Crowdfunding

To avoid the fate of other p2p projects, DeFi protocols need incentives and feedback loops so users choose open-source over closed systems.




How many Libertarians do you think there are in the United States?

Everyone, right? Everybody wants personal freedom and a limited government. Just listen to Twitter bots and the talking heads on the propaganda channels. Everybody votes their principles and is internally consistent in their logic. Long live Ayn Rand!

Lex Sokolin, a CoinDesk columnist, is global fintech co-head at ConsenSys, a Brooklyn, N.Y.-based blockchain software company. The following is adapted from his Fintech Blueprint newsletter.

The answer is … about 3% of the voting population.

About 3% of the population actually cares enough about their personal philosophy to lodge a particular vote in the direction of the Libertarian Party. We could have picked on the Green Party instead, or any other policy-oriented group, and gotten the same result. The reality is that everyone else votes Democrat or Republican because those are the teams that matter.

Everyone complains about Amazon but we all shop online. We mourn the loss of the neighborhood coffee shop but we buy Starbucks for the loyalty points. Thus the hypocrisy of human nature.

And here’s the meat: We want peer-to-peer (p2p) economies, grounded in our neighborhoods and tribes. We think Wells Fargo and Bank of America and the Federal Reserve and the rest of “them,” whoever “they” are, are centralized monoliths running on papyrus and holding back innovation.

Right. Where do *you* bank exactly?

Peer to peerless

Do we really want peer-to-peer economies, though? Or are we lost in the poetry of utopia?

Remember Napster, Kazaa and BitTorrent, with their brick-through-the-window of the media industry? Initially, the naive reaction of the labels was to build digital rights management into music players, song files and any teenager onto whom they could tattoo the letter of the law. DRM didn’t work, right?

Certainly one way to look at the explosion of file sharing is to focus on the absolute figures of people consuming media for free. The core question there is to ask whether those people would be paying consumers in the market in the first place, or whether radio and mixtapes have been replaced by the digital substitutes of “piracy,” YouTube copyright infringement, and other modern artifacts.


Shawn Fanning, Napster
(Getty Images)

We don’t know the answer. We suspect, however, that if you had the patience to suffer through a DJ’s advertisements or had the time to rip tapes, you might be the kind of person who has the capacity to deal with managing the mechanics of using torrents for file sharing. The clearest formulation on this topic comes in the article “The Fifth Era of Recorded Music” from Bill Rosenblatt.

The media industry has been able to deploy a business model that uses the internet to deliver a better user experience when bundled with the law. It is a worse user experience to avoid it. DRM-free downloads have collapsed as a commercial model.

Put another way, a digital music company is as much a monopoly as its predecessor the record-label. Likely an even better one, given digital returns to scale. It is so good, that the peer-to-peer alternative loses as a value proposition.

In the same vein, it’s hard to find good data on YouTube as a facilitator of copyright breach. But we know that a lot of websites and videos contain media content a record label would otherwise try to monetize. If that media is not on Spotify, it is very likely on YouTube, accessible for free. A proxy for this content are the take-down requests under the DMCA now numbering in the hundreds of millions.

Is that piracy? Maybe. It is certainly “file sharing.” Is it peer-to-peer? Absolutely not.

Just because content is user-generated, that does not mean it is peer-to-peer. Google is the platform that mediates access and takes rent through advertising. Google is the platform worth over $1 trillion today. And this realization takes us to Lending Club.

Peerless lending

Lending Club represents an era of fintech credit. The core premise at its founding was to recreate the dynamics of the sharing and social media revolutions. Instead of mediating everything through the centralizing machine of a bank – and by the way banking licenses were sort of hard to find in 2006 – why not create a connective platform like Kazaa (a long defunct file-sharing service)? A bunch of people who need to borrow can show up with various credit risks. And a bunch of people who would like better investment returns can show up to assess those risks. And you, as the platform, take a cut.

Sound familiar? This section is a warning shot to Compound, Aave and the rest of the DeFi protocols that think that redefining technology redefines market structure, human nature and micro-economic behavior.

This section is a warning shot to Compound, Aave and the rest of the DeFi protocols that think that redefining technology redefines market structure.

The first problem is getting good risks. If you are a venue for emerging credit, the risks that come to your platform are subject to adverse selection and the lemons problem. So you need sufficient aggregation, correlated with heavy customer acquisition and branding costs, to create the asset class of reasonable credit exposure. This is also why digital asset fundraising platforms are having a hard time. Most good startups still want to raise money from Goldman Sachs, Google Ventures, and Andreessen Horowitz. Not Globacap, the investment software platform, despite such a site being a strong technical and market innovation.

The second problem is getting enough investors. Remember we started talking about Libertarians that actually vote their politics? The same dynamics are there for financial behavior. Nobody actually wants to do the homework of selecting Lending Club notes, which requires learning about credit risks and understanding complex financial geek jargon to pick an investment. And the investors you get, especially if they are retail, are lumpy and finicky. Your liabilities do not match the time horizon of thousands of people, flickering about with their needs.

By the way, this is a problem Dimensional Fund Advisors solved 40 years ago. Instead of selling its mutual funds to retail – and dealing with constant redemptions and purchases – it targeted only institutional distributors (RIAs). This strategy meant the financial product had less turnover and generated better returns. It all worked, until the ETF [exchange-traded fund] product packaging came along, which did not even require fund redemptions and purchases to take place, instead letting retail investors trade the abstraction of an index as a share.

So you soldier on and bring in hard-nosed hedge fund capital. A private equity firm here and there, to package up all those Lending Club notes and smooth out the risks. Maybe sell them downstream into fixed income funds. Of course the cost of this funding from alternative financiers is really high, because their job is to take the entire economic return and you have no pricing power. So you decide to aggregate your own capital through deposits and buy Radius bank.

See also: Lex Sokolin – The Revolution You’ve Been Awaiting: Fintech + DeFi

And then you give up on peer-to-peer lending entirely. You’re a bank now anyway. Why would you need this onerous many-to-many platform, when you can just offer some “high-yield” savings accounts.

It sucks. Peer-to-peer lending is dead. It was never going to work without a centralizing function to standardize deposits and slice up the risks. And the amount of people who “want” peer-to-peer is like the number of Libertarians. You and I still bank at the financial incumbent for 80% of our needs, and send 5% into a fintech digital lender for experimentation.

What’s the exception? What’s the Google of this world? Let’s look at our friends in China.

This geography too had a p2p lending explosion, which in large part involved fraud and bankruptcy. From the peak of 3,500 digital lender platforms, around 600 remain standing. Among them are the giants of Ant Financial and Tencent’s WeBank. The high tech platforms outlived all of the individual fintech competitors, and used their size and credibility with regulators to remain in business. Everyone else is being effectively shamed and shut down.

Returns to scale have come from being a technology monopoly. Financial features are the monetization cherry on top.

Crowdless funding

In an eerily similar fashion, the same challenge is hitting the equity crowdfunding industry. We have been bearish on these platforms because of the Libertarian (i.e., small market, low commitment) problem. The profile of a financial consumer that likes to make some-but-not-all financial decisions is a myth. The failures of Covestor, Motif, Kaching and other digital wealth platforms promoting a semi-active investing style in the U.S. highlights the problem. The U.K., on the other hand, still holds on to a functioning narrative about this sector.

Some of the early neobank players, like Monzo and Tandem, engaged with the crowdfunding market to raise single-digit million amounts from thousands of excited supporters. Those supporters were also early-users of the neobank products. The positive relationship between investors and users spun out into the story that crowdfunding is a successful economic arrangement, and that the crowdfunding platforms themselves will be the next generation of investment banking. To do this, the platforms had to do the heavy lifting to impact regulation that created operating models allowing regular people to access the venture asset class. And yet last week, Crowdcube and Seedrs (the two arch-rivals of equity crowdfunding in the U.K.) announced a 60-40 merger and a likely need for future growth equity. 

Or perhaps, unlike the media industry, the financial industry has not yet been able to deploy a business model that uses the internet to deliver a better user experience.

There are three takeaways for us. First, you have to make this market 1,000 times larger. If we were talking about a merger of £4 billion and £7 billion in revenue, rather a few million in revenue, then it would matter a lot more. One way to do that is by bypassing the geographic and regulatory boundaries under which Seedrs and Crowdcube have had to operate. This is in large part why crypto markets print large numbers – they are global, including the United States, Brazil, China, Russia and the African continent. There is always demand somewhere.

Second, the adverse selection problems remain in the asset class. Why are these unique or exciting investment opportunities? Who really cares about putting money into a local small business and facing 100% loss when you can buy Amazon stock and watch it go to $2 trillion? Who really cares about buying coffee from the local shop when they have the Starbucks app and rewards cards? If you had more investors on Seedrs, would the Silicon Valley tech players (like Slack) decide to IPO there instead of the New York Stock Exchange? You can see this same theme playing out in the acquisition of SharesPost by Forge earlier this year.

And finally, there is hope. The incentive alignment between people who crowdfunded the neobanks and then became users of those applications is profound. This is exactly the dynamic that crypto protocols have been ideating around. See this write up: “Liquidity Mining: A User-Centric Token Distribution Strategy” or the ConsenSys approach to the same problem here.

Crowdfunding works not when there is “access” but when there is something to achieve by participation. In today’s world, that something is largely financial return. To be honest, it is sometimes confounding how Initial Coin Offerings – the next generation version of crowdfunding – were able to raise $20 billion over two years. Or how Decentralized Finance, the next generation version of blockchain-based capital markets, has been able to manage a $15 billion capital base.

Perhaps the capital itself is far more risk-seeking, and is in the appropriate part of the portfolio (i.e., alternatives). Perhaps the community aspects are far stronger than in the crowdfunding model, and thus viral coefficients are higher, leading to faster social distribution. Perhaps the interoperability of issuance and trading allows for quicker monetization, and a sense that these markets are worth the trouble.

Or perhaps, unlike the media industry, the financial industry has not yet been able to deploy a business model that uses the internet to deliver a better user experience when bundled with the law. We are all still working to figure it out.


We are in a world where Morgan Stanley has acquired Smith Barney, eTrade and is now adding Eaton Vance for $7 billion. The esteemed institutional businesses are in the retail hen house.

That’s $1.2 trillion in assets under management in manufacturing and $3.3 trillion of assets in distribution.

In the political sense, choosing among Morgan Stanley, JP Morgan, Bank of America, and Goldman Sachs is like choosing between Democrats and Republicans. Regardless of your niche political beliefs, you should pick a party that matters – not the Libertarians. Don’t take this as a comment on the current election, in which we can say the sane choice is far narrower (self-destruction vs. attempted redemption). It is a comment on power structure and how consumers of financial services behave.

Peer-to-peer models have not become a stable market equilibrium. While p2p activity continues in media, digital monopolies wielding the law have re-emerged and are more powerful than ever. In p2p lending, the original innovators have exited the business in favor of a more straightforward, scalable solution called banking. In p2p crowdfunding, the market is consolidating and showing limited growth economics.

Is this a feature or a bug?

What we can do in the blockchain experiment is to position mutually owned protocols as market venues, such as Uniswap, Compound and Curve, and create feedback loops for both companies and users that incentivize them to choose open-source standards over closed solutions. 

But it won’t be an easy win against human nature and our collective resistance to change. Linux and Wikipedia have shown us one way. Another way is that parts of the enterprise economy find meaningful value in decentralized networks and commit not to cheat in the Prisoner’s Dilemma. Or perhaps it will be a national priority for China to integrate all economic activity into its blockchain service network, and that will be the Sputnik moment for the rest of the world.

The answer is hard to know, but we have at least articulated the outlines of the question.




New Crypto Rules in Thailand Could Require Traders to Show Income Before Opening Trading Accounts

New Crypto Rules in Thailand Could Require Traders to Show Income Before Opening Trading AccountsThailand seeks to introduce a new set of rules for retail crypto investors, specifically targeting those who want to open accounts. The Thai financial watchdog could require domestic crypto exchanges to ask traders for proof of income. Thai SEC Could Also Ask Crypto Investors to Prove Their Knowledge of the Market According to a Bloomberg […]




Thailand seeks to introduce a new set of rules for retail crypto investors, specifically targeting those who want to open accounts. The Thai financial watchdog could require domestic crypto exchanges to ask traders for proof of income.

Thai SEC Could Also Ask Crypto Investors to Prove Their Knowledge of the Market

According to a Bloomberg report, the Securities and Exchange Commission (SEC) of Thailand is likely preparing the ground to require investors to show their income or assets before opening accounts.

Ruenvadee Suwanmongkol, the secretary general of the country’s financial watchdog, pointed out that anyone who isn’t allowed to trade cryptocurrencies via their accounts can invest through licensed managers. She added:

It’s a big concern as most crypto investors on domestic exchanges are very young, such as students and teenagers. We realize those people love innovations and technology, but investments in these assets have enormous risk.

Moreover, the general secretary said that non-qualified crypto traders could invest via financial advisers only if they’re licensed by the SEC.

The watchdog is set to unveil its new rules on crypto trading over the week, ahead of a public hearing scheduled for March. Officials involved in the meetings are expected to evaluate recommendations from local exchanges and brokerages.

Although it’s not confirmed, the general secretary suggested that investors have to prove some knowledge of the market before being allowed to open crypto accounts for trading.

Six Licensed Crypto Exchanges Operating in Thailand so far

The rhetoric from the Thai SEC is now shifting to a cautious one towards the cryptocurrencies’ risks. However, they keep granting licenses to crypto businesses in the nation. So far, in terms of digital asset exchanges approved, there are only six operating legally in Thailand.

They are Bitkub, BX, Satang Pro, Huobi Thailand, ERX, and Zipmex. All six licensed crypto exchanges are approved for both cryptocurrencies and digital tokens, except for ERX, which is only approved for the latter.

The SEC distinguishes cryptocurrencies as “created for the purpose of being a medium of exchange for the acquisition of goods, services, or other rights.”

On the other hand, digital tokens are created “for the purpose of specifying the right of a person to participate in an investment in any project or business, or to acquire specific goods, services, or other rights under an agreement between the issuer and the holder,” said the financial watchdog.

What do you think about the words from the Thai SEC general secretary? Let us know in the comments section below.

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Image Credits: Shutterstock, Pixabay, Wiki Commons


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DEX volumes have already surpassed $120b in 2021

DEX trading volumes on Ethereum hit $63 billion in January, smashing the sector’s previous record of $28 billion.




Ethereum-powered decentralized exchanges, or DEXes, continue to surge despite high transaction fees — with DEXes processing more than $120 billion in 2021 so far.

According to Ethereum market analytics platform Dune Analytics, combined DEX volumes posted a new record of $63 billion in January. February’s volume currently sits at $59 billion and is on track to hit $67 billion at the month’s end.

DEXes have already processed more volume in the first two months of 2021 than during all previous years combined.

Monthly DEX volume: DuneAnalytics

The Ethereum-powered DEX sector is still dominated by Uniswap and Sushiswap, who account for 65% of February’s trade combined. Uniswap currently represents more than double Sushi’s volume, controlling almost 50% of DEX market share.

However, looking at the weekly number of active traders on each platform shows that Uniswap represents more than three-quarters of Ethereum DEX users. Over the last seven days, nearly 142,000 unique wallets traded on Uniswap, followed by decentralized exchange aggregator 1inch with roughly 18,450 traders, and SushiSwap with 8,911.

However, not all DEX trading activity is occurring on Etheruem, with Binance Chain’s Pancake Swap surging to report a daily trading volume behind of more than $1.1 billion.

Despite some users migrating away from Ethereum-based DEXes, confidence in the sector as a whole is at an all-time high, with the total value locked in these exchanges sitting above $40 billion for the first time during recent weeks.


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Ethereum on track to settle $1.6 trillion this quarter

Ethereum’s quarterly settlement value is on course to increase by 1,280% year-over-year.




Ethereum usage is surging this year, with the value of transactions settled on the network skyrocketing during 2021.

According to research from Messari, Ethereum has settled $926 trillion worth of transactions this quarter so far — 700% more than it processed during Q1 2020. 

The network is currently on-pace to settle $1.6 trillion in transactions for the first quarter of this year. In the last 12 months, Ethereum has already settled $2.1 trillion in transactions.

If Messari’s $1.6 trillion forecast is accurate, Ethereum’s quarterly settlement value will have increased 1,280% compared to Q1 2020, and more than 5,000% compared to Q1 2019. 

Messari researcher Ryan Watkins noted the data counters the prevailing narrative that Ethereum is seeing an exodus of users amid its high gas fees, exclaiming:

“Incredible scale for a technology that critics claimed couldn’t scale.”

Ethereum’s recent surge in settlement value can be attributed to explosive growth in the DeFi and non-fungible token sector — most of which is based upon Ethereum.

The massive demand on the network has caused gas prices to surge to all-time highs. With many retail traders increasingly getting priced out of using the Ethereum mainnet for smaller transactions.

Average Ethereum transaction fees spiked to record highs of $40 on Feb. 23, with Ethereum generating $50 million worth of transaction fees in a single day. is currently reporting an average daily fee generation of $32 million for ETH over the past seven days. Comparatively, Bitcoin has generated just $8 million daily on average over the past week.

According to, average transaction fees surged to a record high of almost $40 on Feb. 23. At the time of writing, Ethereum’s fees have retreated to $21 on average.

On Feb. 24, Cointelegraph reported that a fat-fingered DeFi user mistakenly paid more than 25 Ether worth $36,000 for a transaction this week.

Amid the high fees, Crypto influencers are urging an accelerated launch of ETH 2.0 to alleviate pressure on the congested proof-of-work blockchain.


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