The Guardian’s article this week declaring that extensive DNA testing on Subway’s tuna subs found no evidence of tuna DNA, made me laugh a lot.
I don’t think this announcement will affect sales of their product at all, I also think it serves as a useful metaphor for the assumed understanding of some of the emerging risks in DeFi markets.
A Subway fan who loves their tuna “sanger” probably knew that Subway was using a different supplier to Nobu for their tuna, they hoped it was tuna and certainly that it’s fish they are eating, but my guess beyond that is that they knew a global fast food sandwich shop was giving them a great taste at a low price point, and were OK with the risk.
Flipping this into DeFi, I think, those users of DeFi protocols like Yield, Aave, Compound and SushiSwap know what they are doing, understand the risks of these platforms, and have decided to take those risks in return for the rewards. The crowd using them are actively learning to know what they are doing. The Subway Tuna sandwich crowd.
Where I think the metaphor changes to become a little bit more like poisoned baby milk powder, is in the platforms that market high interest crypto savings accounts as black box investment platforms to retail investors. Where the risk is played down, there is no transparency as to how the return is being generated, and no open acknowledgement of the very high risks involved.
The Financial Times summarised the risks well, by saying, ‘Opaque lending in highly volatile assets raises serious concerns about risks to the sector, even though many platforms retain high levels of collateral. “There is a lot of risk from interconnectedness. It’s the same counterparties lending and borrowing to each other,” said an executive at a crypto trading firm. “A really sharp negative movement in the market could prompt a domino effect.” The executive said some of the riskier lending looked like, “an accident waiting to happen”.’ – Financial Times, 1st July 2021
Well it’s a good job that the crypto market never experiences sharp negative movements, so I’m sure it will all be fine. I am off to get me a tuna sub for lunch 🙂