Just like ICOs and STOs were the buzzwords of 2018, DeFi is the buzzword of 2020, as the market has seen an increase of 1,511% year-to-date in terms of value locked. Even though the reasons behind its popularity are clear, what is also clear is that DeFi is little more than an attractive name for unconventional projects.
The Venezuelan security regulator, called the National Superintendency of Securities (SUNAVAL), has announced that they will be launching a pilot for the Decentralized Stock Exchange of Venezuela. They’re calling it the world’s first decentralized stock exchange, adding that it is a DeFi project that runs on the Ethereum network. According to the government’s legislative bulletin, “the platform guarantees transparency, security, speed, reliability, traceability and a lower cost of operations.”
Even though this is a perfectly legitimate way to modernize your business model and we have no reason to doubt that the platform really does guarantee all these perks, calling it a DeFi project is, at the very least, a bit of a stretch. It is clear that DeFi is increasingly being used as an umbrella term for all projects that run on the blockchain and have anything to do with finance. But this does not guarantee decentralization.
Although having a government run a supposedly decentralized project should be enough of a giveaway, there is another, more general rule of thumb that can be used when determining the level of decentralization of any project: Can someone with a gun force you to shut it down? If they can, the answer is simple: it’s not decentralized.
It could be argued, however, that the platform the Venezuelan government is launching will be decentralized within itself, but with the regulators presumably running the majority of nodes, choosing who to allow to participate, and make network-wide decisions that impact everyone, but the SUNAVAL first and foremost. However, the same thing could be achieved with ledger technologies that are centralized; as many who participate in decentralized networks already know, the decentralization aspect actually makes the whole system slower and more burdensome, which is often dismissed as simply the cost of not having a central point of failure.
This, then, leads to the logical conclusion: they did not choose a “DeFi” project because it’s cheaper. True, it is cheaper than what most government-implemented systems offer right now, but it could be made even cheaper by simply removing the decentralization aspect. The only reason they’re launching something they call DeFi is because it’s a fun buzzword. Unfortunately, this distinction is rapidly dissolving, as many DeFi enthusiasts seem to push the limit of what actually falls under that term.