DeFi: Trust the Trustless

A Reflection on Trust in DeFi

This is actually five short thought-pieces by different authors.

Although I disagree with much of what is written, the Conclusion does a good job of summing up the current state of play.

To sum up: blockchain technology is guided by the ethos that it is an object of trust by design, and therefore a mediator of trust by default. The clearly defined and encoded rules, however, do not mean we no longer need to trust. On the contrary! It means that there is an implicit shift from trusting crypto’s materiality as a ‘trust-free’ technology to trusting participants within the network with whom we are actually transacting and interacting. This comes with an additional challenge related to the nature of crypto: Establishing trust in a pseudonymous, decentralized space involves trust mechanisms that haven’t been explored yet!

"Code is law" assumes that it is perfect, or at least does perfectly what it claims to do. This is obviously not true given so many hacks; many are flaws in the tokenomic structure and the inability to test for, and repair, malicious mathematical attacks; the rest are flaws in the code itself, vulnerable to protocol exploits.

The latter issue has given rise to numerous certification and smart contract analytics platforms; the former is trickier as requires some simulations of the economic system under various assumptions.

In an attempt to reduce, or eliminate, trust-issues these have been replaced with deep knowledge-issues. As that Conclusion states, we remain far from having reliable code that can be trusted both at the protocol and the economic level.

Most people don't understand how a car works, yet are able to drive - more or less. The controls at the driver's disposal have mostly abstracted away the underlying physical mechanisms. Similarly, TradFi deals in often complex mathematical products where, again, the alleged benefits have abstracted away the technical features that give rise to them.

Crypto and DeFi are still at the stage of open architecture, somewhat like the earliest cars, and this is necessary as many of the algorithms did not exist before. But this also means that a simple consumer-layer of abstraction is still in its infancy. Without individual knowledge, we're back to trusting either the code, or the mathematics, or the shills peddling the latest coins.