Replacing banks and brokerages to be the middleman for buyers and sellers is one of the values that Decentralized finance (DeFi) Brings to the modern digital market. Almost every definition of DeFi noted the fact that financial services are made available without any centralized entity in charge.

However, in one of Glassnode’s most recent experiments, DeFi shows itself to be more dependent on the USD, (which is essentially backed by a centralized organization; the government) further reflecting a major relationship between DeFi and the USD. This relationship is one that Glassnode finds to be highly dangerous in the long term.

The USD’s connection to DeFi is proving to be extremely dangerous

A major debate in the cryptocurrency community has been the possibility of the crypto market, and the subset of innovations created within that industry surviving independently in the long term.

While skeptics argue that the industry might not last for too long, community members argue that the markets’ dominance over the short period of time that it has existed is partly proof that Crypto, DeFi, and NFTs can survive without depending on the traditional financial market. However, Glassnode makes a thought-provoking argument for why DeFi’s involvement with the USD is worrisome.

“DeFi has built a system with strong reliance on the money games of old. We’ve tied ourselves to the legacy systems of finance through reliance on the US Dollar as the reserve currency of DeFi. To date, DeFi has pegged over $100B in value to the US Dollar.” -Glassnode.

DeFi’s dependence on Stablecoins is alarming

Glassnode also records that in May alone, more than $750 billion transfer to USDT, BUSD, DAI, and USDC blockchains were seen. This goes on to prove that stablecoins are a key pipeline in the DeFi market. And Glassnode argues that without these stablecoins, DeFi might just be another one of the flawed financial systems used in the past.

“Take away these USD-pegged stablecoins and DeFi reverts to the stone age – no clear flight to safety, no more lending markets (high reliance on stablecoins), and loss of a favorite farming/liquidity vehicle.”- Glassnode.

The way forward? New class assets

Even though Glassnode asserts that the market is already tightly intertwined with the USD, “to ever unwind our dependence on USD-pegged stablecoins,” it reckons that the arrival of a “new class of DeFi currencies” can attempt to solve some of the already existing problems. 

Olympus DAO, the algorithmic currency that maintains stability without a peg, is one that Glassnode experimentally presents as a possible game-changer.



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