Most of the high profile collapses in 2022 – FTX, Celsius, Voyager, Three Arrows Capital, Genesis – involved custody-holding CeFi (centralized finance) companies that put customer funds at risk. That has galvanized supporters of DeFi (decentralized finance), who rightly note that the most robust decentralized market-making and exchange systems survived, precisely because they lack a trusted intermediary capable of such abuse. Yet as of October, Chainalysis estimated that DeFi investors had lost a record $3 billion year-to-date, due to smart contract breaches, “rug pulls” by founders, and because the underlying tokenomics of some protocols were deeply flawed. (The destructive collapse in the Terra ecosystem was exemplary of the latter instance.) DeFi is a wild, volatile, confusing, unpredictable place. To achieve widespread participation, it needs a more comprehensive audit model in which trustworthy independent analysts or bounty-hunting developers assess projects’ code security, founder practices and tokenomics.



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