Transparency — the new cool.

Not a nice to have, but a requirement now.

In a world not too long ago, CeFi would offer glorious terms that would make people froth and collect those juicy assets under management. Now, anything that remotely looks too good to be true is questioned endlessly by the mob — which is great! We’re getting closer to reality. The most notable example of this is Nexo’s recent thread about them trying to justify why their 10% is “safe”. Their response is a long winded thread but opens with a complex diagram that’s meant to impress you but really just leaves you with more questions that answers.

Nexo @Nexo

Nexo has grown as a company, and so has our offering, but the underpinning principles remain the same. With this thread, we would like to shed some light on Nexo’s business model and how it might differ from that of others. 🧵 Take a look at the chart below and let’s unpack it:

The key thing this really highlighted to me personally was just how much the collective consciousness is progressing around unsustainable and questionable economics in this ecosystem. Slowly we’re seeing many assumptions and models around the ecosystem being challenged and to those who don’t hold up, there’s a steep cost.

Anything that CeFi does is being questioned very thoroughly now. Proof of reserves isn’t a nice to have but going to be heavily demanded. However, even that doesn’t show you the reality of a business because you don’t know the off-chain liabilities and loan agreements. You could have perfect proof of reserves but be 10x leveraging your user’s assets through off-chain agreements signed in meatspace.

Regardless, I think the biggest winner here is really DeFi. We all strayed from the truth by trashing DeFi and saying why anyone would ever want this technology. We’re just re-learning the expensive way — which is okay because hopefully it won’t be forgotten then. What’s phenomenal about a lot of the recent implosions is that DeFi lenders are always paid back first because you can’t really negotiate with smart contracts or make shady agreements where you re-hypothecate the collateral more times than you can count on your fingers. Protocols like Maker, Compound and Aave look even more amazing after seeing the events that have happened in the past few months. On-chain transparency is the gold standard that I think everything should start to strive for.

While DeFi can also have faults, the bottom line is that data and transparency are going to become much larger themes if they aren’t already. For example, I wrote a few weeks ago about how a lot of the “revenue” in the space is basically fake and it’s amazing to see now how everyone actually considers token incentives when talking about revenue. It’s not just about having the data, but understanding how that data is constructed and the assumptions that underpin that data that are coming to light. If all of this was done months ago I think we would have saved a lot of pain in the space collectively.

Payom Dousti @PayomDousti

the institutional case for defi has become obvious -- minimized & transparent counterparty risk + seniority to the traditional financial system in creditor stack

Hopefully we don’t forget these lessons in the excesses of the next bull market. Till then, if there’s one prediction I can make with high confidence is that transparency is going to be a must-have not a nice to have moving forward.