DeFi’s Existential Problem: It Only Lends Money to Itself

Remem­ber how the bank­ing sys­tem self-destruc­ts every few decades? Now imag­ine if banks only lent mon­ey to finance oth­er banks, and you may get a notion of the house of cards that is “decen­tral­ized finance,” or DeFi.

Cryp­tocur­ren­cies keep nose­div­ing, with bit­coin trad­ing steadi­ly below $20,000 for the first time since 2020. The chaos has spread to DeFi: Cel­sius, a top cryp­to lender with assets of around $20 bil­lion, was recent­ly forced to freeze deposit with­drawals. Last week, cryp­to exchange FTX said it was bail­ing out one of Cel­sius’ trou­bled com­peti­tors, Block­Fi, with a $250 mil­lion loan, not long after res­cu­ing cryp­to bro­ker Voy­ager Dig­i­tal.