Despite increased adoption and acceptance, the cryptocurrency industry as a whole is still viewed as a high-risk investment. Indeed, many people are put off by the market’s constant volatility, scams, hacks, rug pulls, and speculation.
This is perhaps even more true in the DeFi sector. Especially since it has been the victim of over $10 billion in scams and hacks this year.
According to cryptocurrency entrepreneur Erik Voorhees, the increased vulnerability of DeFi protocols stems from their novelty. In a recent podcast, he stated that the primary driver of these crimes is a lack of peer reviews and background information from these protocols.
“By definition, any new project in DeFi is far riskier than the base Ethereum chain, which is riskier than Bitcoin.”
It is worth noting, however, that he believes this should not jeopardize the credibility of the entire industry.
“The fact that early bitcoin exchanges were scams does not imply that Bitcoin is a scam, and the fact that DeFi projects are scams does not imply that DeFi is a scam.”
However, the low-risk factor provided by regulated exchanges and high-capacity protocols does not compensate for the market’s current risky turns.
During the same podcast, Alex Gladstein, a Human Rights Foundation executive who advocates for activists to use Bitcoin, supported this idea. He suggested that the surge in DeFi activity is beginning to resemble the financial crisis that gave birth to Bitcoin in 2009.
The Bank of England recently made similar remarks, claiming that unregulated market growth could lead to a similar economic meltdown.
Gladstein compared the current surge in meme coins such as Dogecoin and Shiba Inu to the risky mortgage-backed securities sold to investors during the US housing bubble.
Recently, these coins have surpassed the market capitalization of top coins such as Litecoin, Chainlink, and Uniswap, among others, with rallies reaching triple digits.
Because of the rise of these altcoins, many new investors now regard Bitcoin as a “boomer coin” with fewer use cases and profitability than alternative tokens. Previous research has found that many millennials prefer high-yield speculative coins to Bitcoin.
Gladstein believes that this preference will be regretted, and he adds
“I believe there will be a lot of sorrow and regret over that perspective that is really dominant in the crypto space ten years from now… Everyone will wish they had purchased more Bitcoin.”