Would GME be possible in DeFi?

Myth: This would not have happened if GME were an Ethereum token

But this would not be possible in DeFi, right? Right?!

  1. Not all decentralized exchanges are actually decentralized. This probably doesn’t come as a surprise but if we take a closer look at the codebase of a few DEXes out there, we will find some form of central access control — typically an admin account that can upgrade the contracts or halt operation. Our hedge fund need only get in touch with the person/group in control of this account, apply some pressure or offer a lucrative bribe — and trading can at least be slowed down (until liquidity moves to DEX without backdoors). Note: this is also the case for most L2 solutions.
  2. Ethereum & co. are not as decentralized as it seems. Probably not big news either but the mining power on Ethereum and most other PoW (and also PoS chains) is not as “decentralized” as we often claim it to be. 3 mining pools together control more than 50% of the hash rate. And we don’t really know who controls these pools in the background / if they collude. Now, miners within these pools don’t typically choose which transactions will be accepted into a block — this is done by the operator. So if our hedge fund can try to convince pool operators to help them out and block transactions trading GME tokens. Arguably not as easy as colluding with a centralized platform — but far from impossible. Let’s also not forget that a large portion of Ethereum transactions actually never hit the mempool but are shared with miners off-chain — which hints towards the possibilities here. Note: the same applies for staking pools!
  3. Miners / Stakers can be bribed. This one’s tricky. While there may be altruistic actors in this space who would reject colluding with our hedge fund, history paints a different picture. MEV (miners extracted value), ICO front-running, and the evidence for private, off-chain transaction broadcasting services suggest that if bribed sufficiently by our hedge fund, miners would likely (at least temporarily) slow down trading of GME tokens.
  4. We have seen forks to bail out hacks. Last but not least: we have already seen hard forks to bail out victims of hacks. This is arguably a different scenario and might even be seen as “doing the right thing” — but it is a precedent for something that we don’t really anticipate happening in our ideal DeFi world. What’s to prevent this from happening in the case of GME? What if the hedge fund was a DAO that was hacked and never actually wanted to short those GME stocks? Far fetched? Probably. Impossible? Decide for yourself.

It’s not all bad!

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Co-Founder & CEO @ Interlay. PhD @ Imperial College London

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Alexei Zamyatin

Alexei Zamyatin

Co-Founder & CEO @ Interlay. PhD @ Imperial College London

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