People are arguing about whether or not DeFi is bad for proof-of-stake systems

It all started with a post from Haseeb Qureshi, an investor at Dragonfly Capital, titled ‘How DeFi cannibalizes PoS security.’ Qureshi wrote a piece implying that the more Ether gets locked in DeFi, the less people there will be to stake, resulting in a weaker proof-of-stake system.

Since posted, the article has received harsh criticism from people like Vlad Zamfir and founder of EthHub, Eric Conner.

The “unqualified” opinions that Zamfir was referring to comes from Tarun Chitra, CEO of the Gauntlet Network, who Qureshi cited in his article. Gauntlet is a “simulation platform” that increases security of smart contract protocols. They work with projects like Compound, so they don’t seem to have much of incentive to degrade opinion on DeFi.

Qureshi’s Dragonfly Capital is even deeper in to DeFi, being invested in Compound, dYdX, Oasis Labs, Cosmos and more, all built within Ethereum. Certainly an investment group with money thrown around the DeFi ecosystem wouldn’t want to hurt returns in any way.

Zamfir doesn’t deny the potential issues, but says that they have been discussed before and brushes it off as a non-issue. Eric Conner on the other hand offers an in detail perspective on the argument.

“It’s claimed the attacker can gather this ETH by paying high rates on Compound. Besides major jumps in logic around liquidity of the defi market and sourcing of collateral, let’s just assume the attacker is able to borrow all this ETH and find $1.5bn in collateral.” – @econoar

He goes on to break down the math behind why it would be unlikely for an attacker to take over 5,000,000 Eth, but the basis of the argument is that it would be very difficult. Others have mentioned that economic incentives aren’t the only reason to claim stake, and there will presumably be a large group of people who are staked for the sole purpose of keeping Ethereum secure.
Brendan Foster, Co-founder of Dharma gave some insight to how Compound might deal with proof-of-stake, a widely used lending platform that he works closely with.
“I’d bet that Compound will integrate staking in ETH2, just like they have DSR for unutilized Dai. So lending in high-yield DeFi won’t be mutually exclusive with staking” – @brendan_dharma
As usual, people don’t really know what will happen in crypto as most operations are one big experiment. It’s hard to name a crypto project that hasn’t gone through a very traumatic experience at some point. Let us know in the comments if you think DeFi will ruin Ethereum’s upcoming proof-of-stake mechanisms.