Finance Redefined: If it ain’t broke, don’t fix it? Jan. 6–13

A DeFi dev’s vent highlights why traditional investment has its merits.

Finance Redefined is Cointelegraph’s newsletter focusing on the latest events and trends of DeFi, delivered to subscribers every Wednesday.

This week I wanted to highlight Andre Cronje’s recent confession on Medium, which triggered a fair bit of discussion and quite a bit of salt from Uniswap team members. This particular spat occurred because he complained about developers just forking someone else’s code and launching it themselves. For those unaware of the irony, this is basically what SushiSwap, a Yearn ecosystem member, initially did to Uniswap.

More importantly, Cronje also complained about what he perceives as an entitled DeFi community, and the concept of giving tokens away without a founder’s stake.

Cronje’s argument can be summarized as follows: DeFi users are largely speculators who are paid to use the projects, and see price action as the ultimate sign of their success. No matter what kind of work the developer puts in, the community will always only care about the number going up and will personally hold the developer accountable if it fails to do so.

Finally, Cronje warns against giving away tokens. Development costs for Yearn apparently exceed the value of the few tokens he farmed. Essentially, launching a product that attracted hundreds of millions of dollars made him poorer.

A hard to please community

Cronje’s categorization of the DeFi community can be applied to the entire crypto ecosystem. I also believe that it’s just a natural consequence of the fact that there are tokens to get rich off. Would you ever join the Discord or Telegram chat for, say, Bank of America? Costco? Coca-Cola?

There are definitely some people who have fun interacting with these huge brands. By and large, though, without a financial stake in the company you really don’t care about what it’s doing on a daily or monthly basis. Do you think there could ever be an enthusiastic community behind Swift, the banking infrastructure layer? No? Throw in a token that can make huge gains and boom, you have the Swift Army.

I suspect there is a reverse survivorship bias that’s triggering Cronje’s complaints. Most token holders are apathetic when the getting’s good, but heavy losses might frustrate them so much that they could start venting with the developers.

The case for venture investment

Professional investors are a different breed altogether. A good venture capitalist will never ignore or fail to credit the team of a portfolio company for their successes. They are also likely to have the experience to know that price does not equal fundamentals, meaning they will extend support to projects they believe in even as losses mount.

As for Cronje’s financial situation, there is another important lesson to learn from professional investors. Contrary to most people’s expectations, venture capitalists often want founders to have high salaries and plenty of equity. They are ultimately investing in the people behind the project — the last thing they want is for the developers to worry about how to pay rent when they must dedicate 110% of their time to the startup.

Ideals like fair launch, no pre-mine, community ownership etc. sound great on paper, but in practice they may simply not be quite as effective as people think. There is certainly a balance to be found here, as greedy founders are just as detrimental to a project’s success. But I don’t think that throwing the baby out with the bathwater is the answer.

The Yearn community might ultimately decide to offer Cronje a huge salary to thank him for his continuing efforts, which would be a great testament to the effectiveness of decentralized autonomous organizations. But this decision would also highlight how there is no point in reinventing the wheel of entrepreneurship in pursuit of some misguided ideal of fairness. Venture capitalists can be very valuable, and rewarding founders is both pragmatic and fair.

I’d rather invest in a venture-funded project that is honest about what it is than join some “fair launch” where the founder ends up rug-pulling the project for $24 million (temporarily).

In other news

• Yearn community discusses a new value capture mechanism for YFI, potentially ditching its staking dividends.
• The OCC’s Brian Brooks is excited about DeFi’s ability to make banking more transparent.
• Bancor releases results of its impermanent loss protection program, showing the mechanism is more than sustainable so far.
• Nexus Mutual adds coverage for centralized exchange hacks on Coinbase, Kraken and a few others.
• Binance and Orbs launch DeFi accelerator.
• BadgerDAO gears up for launch of Ampleforth-like rebasing Bitcoin.
• SushiSwap reveals an impressive 2021 roadmap.
• Warp Finance adds Chainlink price feeds to prevent future flash loan attacks.