The central theses
- Aave CEO Stani Kulechov believes the income economy is on the way, but DeFi is just getting started.
- Further democratic incentives are required for full decentralization of the ecosystem.
- Kuechov outlined his own method to prove that a project is really decentralized.
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Aave CEO Stani Kulechov highlighted some of the issues with copying and pasting today’s DeFi space, adding that overall fundamentals are still strong.
Aave CEO defines decentralization
The DeFi economy can be unbalanced, favoring rich whales over average users. This is especially true when high Ethereum fees exclude private investors.
Aave founder and CEO Stani Kulechov spoke to Crypto Briefing about DeFi’s problems and possible solutions.
While distribution models favor larger accounts, “this can be resolved by simply creating more democratic incentives instead of copying / pasting the same model all over again,” said Kulechov.
“DeFi” becomes much less interesting when it replaces one centralized, opaque system with another centralized, opaque system.
Here lies the potential to actually build a better financial system.
No cheaper way to farm and trade shitcoins.
– Camila Russo (@CamiRusso) February 25, 2021
Of course, decentralization is the answer. As Kulechov pointed out, decentralization can be a misnomer in DeFi, and he offered his own method of evaluating projects in this area.
“I personally believe that a protocol is decentralized if the founding team’s proposal can be successfully voted against,” said Kulechov, “and the team, including its early investors, does not hold more than 50% of the tokens.”
The “craze” of high-yield farming is on the way
Speaking to Crypto Briefing, Kulechov said that DeFi has always been about incentives, adding that “Yield farming is indeed an interesting way to reward user behaviors like providing liquidity. The sad thing is that many high-yield farming protocols offer yields that are absolutely unsustainable. “
He went on to say that the high-yielding farming practices we see today “print quite a bit of money”.
“I believe that the madness will eventually stop and we will see more sustainable incentives.”
Commenting on the “fatigue” that high-yield agriculture has suffered in recent months, Kulechov added that “fatigue is related to innovation”.
“Most of the incentives for liquidity mining are copied from other notable projects and do not provide the communities with creative opportunities to distribute token governance and involve communities more in the project.”
While liquidity mining can go on for a while, Kulechov said, projects need to involve their entire communities in decentralized token distributions.
Kulechov added that the innovation continues on his own project, Aave, which recently released v2 of its governance model that allows the community to delegate voting rights. Aave is exploring Layer 2 solutions, he added, and said, “We’ll see progress there soon.”
Aave is currently number 3 by market cap on DeFi Pulse
The DeFi founder’s comments on the nature of space highlight persistent issues that have been criticized since the industry began.
DeFi projects market themselves as decentralized, while project teams retain disproportionate control over the token supply. A recent report by the St. Louis Fed listed this as a serious and common risk in DeFi.
It is all too easy to copy and start an existing project in a somewhat unregulated atmosphere, with little added value. However, as both Kulechov and the St. Louis Fed report pointed out, the space is full of potential and projects that are truly innovative and add value could be very disruptive.
When asked what other projects he was pursuing in this area, Kulechov mentioned Pods Finance, a project that is working to lower the cost of options using Aaves aTokens as collateral. He also expressed an interest in Aavegotchi, a DeFi and NFT hybrid project that started on March 2nd.
Disclosure: The author was holding Bitcoin at the time of writing.
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