DeFi Still Needs a Silk Road Moment

Oct 25, 2020 at 15:58 UTC.Mainstream criminal adoption would prove that decentralized finance is building tools with real utility, because if there's any one group that is both underserved in its access to sophisticated financial products and willing to pay huge premiums to acquire them, it's criminals.

While some proponents of cryptocurrencies argue that today criminal activities are a small percentage of all cryptocurrency transactions, censorship resistance is one of the key features of all decentralized technologies and criminals have played a part in crypto's wider adoption.

The fact that Silk Road and other criminal enterprises are able to use bitcoin effectively is evidence cryptocurrencies are a useful and censorship resistant tool.

As of now criminal activity online is mostly based on bitcoin, although other cryptocurrencies, such as monero, also play a part.

The 2017 initial coin offering bubble and "Games" like FOMO3D have shown that Ethereum is useful for a different sort of criminal activity: unregistered security sales and other elaborate Ponzi schemes.

Criminal adoption is a necessary, but not a sufficient, condition for the success of censorship-resistant technologies.

I'll believe DeFi has a product-market fit when drug smugglers can buy trust-minimized insurance for their shipments and retail speculators can gamble on the price of cocaine in Australia the same way they do with the price of oil in Texas.

There are a few hints that financial infrastructure of criminals is being built.

If these projects truly are censorship resistant and create value, we will inevitably see them adopted by those who need them most: criminals.

For the DeFi enthusiasts reading this, it may be worth thinking: Will we be seeing this sort of adoption? If not, what is stopping it from happening? Those reasons are the true obstacles to the growth of DeFi adoption.