Corn: DeFi faces significant customer support challenges, Yearn’s foresight in UST highlights management risks, and the market is set to recover in late 2023.

Important takeaways

• Customer support is still a major challenge in DeFi due to the lack of traditional support structures.
• Yearn Finance carefully develops new strategies to ensure safety before implementation.
• UST was identified as structurally unsound by Yearn, showing foresight in risk management.
• Stablecoins backed by governance tokens may not be successful in the long term due to inherent risks.
• Yearn’s strategy involves considering profit generation opportunities in all DeFi protocols with a focus on risk management.
• The DeFi market is expected to recover and grow in late 2023 and 2024.
• The recent mass liquidation event highlighted the vulnerability in DeFi vault management.
• Converting vaults into multiple structures can lead to a lack of transparency and financial control.
• The limited number of tokens in projects like Yearn creates the wrong incentives for investors.
• Tokens pegged to the dollar can create a false sense of security about volatility and risk.
• There is a serious lack of verifiable evidence in other DeFi projects, indicating possible fraud.
• Traditional financial companies are hesitant to enter DeFi due to security issues and lack of understanding.

Guest introduction

Maize is head of business development at Yearn Finance. Yearn Finance has maintained a long track record as a battle-tested DeFi protocol through multiple market cycles. Maize discusses the evolution of DeFi from 2020 to today, including the impact of the TerraLuna crash and changes in incentive methods.

Customer support challenges in DeFi

• “Customer support is an unsolved problem within the crypto world” – Corn
• Understanding the complexity of DeFi highlights the shortcomings of traditional support structures.
• This issue affects user experience and trust in DeFi protocols.
• The decentralized nature of DeFi complicates customer support solutions.
• Users usually do not have direct contact to solve problems with basic principles.
• The lack of centralized support can prevent new users from engaging with DeFi.
• Developing effective support systems is critical to the mainstream adoption of DeFi.
• “Who do you call when you’re dealing with a decentralized legal system?” – Wheat

Yearn risk management and implementation strategy

• Yearn is diligent about new techniques to ensure safety.
• “Someone from Yearn’s security team will have to look into it” – Corn
• This process involves simple testing of the code base.
• Ensuring security before implementation improves security for DeFi projects.
• Yearn’s approach reflects a commitment to risk management.
• The role of the security team is essential in maintaining the integrity of the protocol.
• “They will have to do at least something like a simple audit” – Ummbila
• Yearn’s strategy involves exploring productivity opportunities across DeFi protocols.

Structural issues with UST and governance-backed stablecoins

• Yearn declined to make a UST strategy because of structural concerns.
• “We knew something was going to happen” – Ummbila
• Stablecoins based on governance tokens are unlikely to be successful in the long term.
• “Anytime a stable is backed by a management token, it’s not going to end well” – Corn
• The reduction of token management ultimately poses a risk.
• Understanding the UST fold provides insight into DeFi risk management.
• Yearn’s foresight demonstrates its expertise in project performance evaluation.
• The risks associated with sovereign-backed stablecoins are significant.

DeFi market trends and recovery predictions

• The DeFi market is expected to recover in late 2023 and 2024.
• “We’re starting to get out of that in the late twenties in 2024” – Corn
• Previous bear markets have impacted DeFi growth, but recovery is expected.
• Investors and stakeholders should prepare for potential growth opportunities.
• Understanding market trends is critical to strategic planning in DeFi.
• The recovery forecast is important for assessing future investment prospects.
• “Until this year” indicates progress in ongoing markets.
• DeFi’s resilience is reflected in its ability to bounce back from downturns.

Risks in DeFi vault management

• The batch completion event highlighted the vulnerability in DeFi vaults.
• “On October 10th there was this event of the elimination of the whole lot of crypto” – Ummbila
• High-risk vault management practices were revealed during the event.
• The event emphasizes the importance of strong risk management strategies.
• Understanding the risks of vault management is critical to the stability of DeFi.
• The completion event serves as a learning opportunity for DeFi protocols.
• “Some bodies have begun to flow ashore within DeFi” – Maize
• Addressing these vulnerabilities is critical to future DeFi security.

Effect of multisig properties on brightness

• Multisig structures can lead to a lack of transparency and control.
• “This gives people a chance to be anonymous” – Ummbila
• Users may not be exposed to fund management decisions.
• The anonymity offered by multiple agencies presents management challenges.
• Understanding the risks of multisig architectures is important for DeFi users.
• Lack of transparency may undermine trust in DeFi protocols.
• “To be invisible in decisions” – Corn
• Balancing transparency and security is a major challenge in DeFi.

Tokenomics and investor incentives in DeFi

• Yearn’s limited token offering creates the wrong incentives for investors.
• “Yearn has no token to print and we have a limited number of tokens” – Corn
• New projects with variable token incentives attract mercenary money.
• “Is this going to be a cycle forever?” – Wheat
• Understanding tokenomics is essential for evaluating DeFi projects.
• The cycle of capital movements based on profits can go on forever.
• The sustainability of projects depends on effective incentive structures.
• “Those are the incentives that started this new multisig project” – Ummbila

Risks associated with dollar-pegged tokens

• Tokens pegged to the dollar can create a false sense of security.
• “It almost gives users a false sense of security” – Corn
• Users may underestimate the flexibility and risk involved.
• Understanding the mechanics of these tokens is essential to assessing risk.
• The perception of stability may not reflect the risks involved.
• “Really under the hood there are dangerous things going on” – Corn
• Assessing the risk of dollar-pegged tokens is essential for making informed decisions.
• Disconnecting the connection between perceived and actual risk poses challenges for users.

Transparency and authentication in DeFi projects

• The lack of verifiable evidence in other DeFi projects indicates possible fraud.
• “When we asked them about it, there was no evidence of anything” – Ummbila
• Transparency is essential to building trust in DeFi protocols.
• Understanding the performance of DeFi projects is important for risk assessment.
• The absence of verifiable evidence is an important red flag for investors.
• “Nothing they did could be guaranteed.” -Corn
• Ensuring transparency and accountability is essential to the integrity of DeFi.
• The need for verifiable evidence highlights the importance of due diligence.

The role of reputation and long-term strategies in DeFi

• Dignity is very important in the caregiving space.
• “Reputation is everything and we don’t accept temporary incentives at all” – Corn
• Short-term incentives should be avoided through sustainable business practices.
• Focusing on user adoption and long-term strategies is beneficial.
• “The profit from those events will not be that big” – Ummbila
• Understanding ethics in DeFi is critical to strategic planning.
• Long-term thinking can influence strategic decisions for projects.
• The importance of trust and integrity is emphasized in the DeFi ecosystem.

The future of DeFi and decentralization trends

• The trend in DeFi is towards reducing reliance on centralized businesses.
• “Reducing partner risk and relying on something that is probably a smart contract” – Ummbila
• The use of smart contracts is expected to grow over time.
• Understanding the current state of DeFi is essential for strategic planning.
• The shift towards decentralization highlights the evolution of DeFi.
• “Removing the human factor from decision-making will become more popular” – Corn
• The future of DeFi involves balancing decentralization and security.
• Adopting decentralization can improve the stability of DeFi principles.