Raoul Pal – former Goldman Sachs hedge fund manager and founder of Real Vision – a financial consultancy and media platform tweeted on 25 May that the last week’s crypto carnage, which saw the prices of most assets, decline by over 40% was actually a stress test for the crypto-world and especially decentralized finance (DeFi). He reiterated that it actually shows the “resilience” and the supremacy of DeFi over traditional finance.
Crypto markets saw one of their trade-mark bloodbaths, where the asset prices suffered double digit losses, stablecoins went off-peg, certain centralized exchanges went offline and there were massive liquidations all across the board. However, nothing much happened. No circuit breakers were deployed to halt trading and the protocols performed as expected. Raoul Pal was amazed.
Some of the centralized exchanges have trouble maintaining uptime in these periods of turmoil and severe volatility. DeFi protocols seem to have learned their lesson from the COVID-induced notorious market collapse of Mar 13, 2020. They suffered from high processing times and prohibitively expensive fees, but none of them went down under. 100% uptime! Perhaps, there is hope for DeFi and the potential for further rapid rise.
Raoul Pal argued that a similar event in the traditional finance world, would have required interventions and Govt’s managing the market. They would have required tax money to be utilized for countering losses to otherwise private players, cash injections and major firms needing immediate funding. According to him, this is a result of clear ownership of assets in DeFi and mass over-collateralization, containing the damage.