DeFi (2/6): Decentralized Finance is often not decentralized, and it’s a problem.

hi it's kevin lobates here and tonight i want to talk about something called wrapped bitcoin because i think it gives you an understanding of what kind of things are going on in the decentralized finance world at the moment um so i'm going to start off with the high level explanation of what wpdc or rap bitcoin is the idea is that you hold some value on the bitcoin system because you have some bitcoins but you want to use that value on the ethereum system and wouldn't it be great therefore if you could lock up your bitcoins receive an equivalent amount of tokens erc 20 tokens on the ethereum chain that everybody knows are pegged to bitcoins and then when you're finished using them you can cash them back in for bitcoin back on the uh bitcoin system um so that's the high level idea behind it and um now how has it been implemented well it turns out that there's a company called bitgo they act as a custodian for your bitcoins so when i say the bitcoins are being locked up they're not they're being taken of being held by this company which has auditing in place according to its website uh they publish a bunch of bitcoin addresses that they say the bitcoins that they are custodians for are being held in um maybe they're telling the truth maybe they're not i can't tell by looking at the website um and there's no point in calling the auditors who knows who's going to be at the uh end of the phone um so i was very disappointed when i saw the mechanism because i was expecting some clever kind of atomic swap system um the likes of which i have not been able to come up with um in order to achieve this transfer bitcoin value onto ethereum and um so that was rather disappointing and it's also not decentralized finance because you're relying on this custodian um you're relying on a centralized central authority you're having to put your trust in them and um you know it's not a trustless system so as i said that was disappointing and then the final thing that struck me is that well actually there is a way of doing this without erc 20 tokens and some nice wrapped bitcoin slogan you can just sell your bitcoin on an exchange that has been around for five six seven years um is um complying with local um financial regulation and um use your bitcoins to buy ether the native cryptocurrency of the ethereum system so what's wrong with that and then when i thought about it a bit more i thought well there is a niche case where you are concerned that you're going to miss out on the appreciation of the value of your bitcoin as it's sitting in ether you want to do something desperately on the ethereum blockchain but you believe that ether is going to go down and bitcoin is going to go up and you're going to miss out um so that's about the only use case i could come up with anyway um that's the video for tonight um shows you some of the problems i think that defy is facing in that in many many cases it's not actually decentralized at all but i would look forward to hearing what you have to say what you think um is my assessment correct or is it wrong let me know in the comments below bye for now

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