Is decentralized finance a mere speculation?

Abstract

In Defi context the human-algorithm dialog opens up new perspectives. I want analyze them and try to demonstrate that this system is not built on solid foundation. Moreover gathers naive investors outrages or disappointed by the old centralized model, that should rely on professionals, like financial intermediaries, who have been replied by Smart Contract in Defi, and not invest their saving in a highly speculative industry in which they have only a myopic and fragment prospective. I will try during the discussion to explain in simple terms all the element and point listed in the index that are part of this new finance branch in order to have a holistic view and draw a rational conclusion weighting up risks and hazards. During this thesis, I will start by providing the reader with a theoretical building block to introduce this new branch of finance, analyzing some macro-concepts, which nowadays have become a topic that everyone talks about, but never going into specifics by defining them and going over the salient events of their history and the dilemmas that still lurk behind them to better make you understand them. Unfortunately, this murmuring of people creates an aura of vagueness, so we will try to dispel this fog together by analyzing their many risks and future investment opportunities. For example, drawing on the wisdom of the Byzantine Generals to solve the intricate problem of consensus in Blockchains, analyzing the problem of money laundering with NFTs, trying to understand whether ethically it is better to pay dearly for the service of human financial intermediaries or to be at the mercy of the cold algorithm that through Smart Contracts that merely executes transactions programmed into its code. Soulbound Token, niche market, antithesis of NFTs, born for fun, are an opportunity not fully exploited for now. Then we will come across two bizarre acronyms, at first DAOs these communities of individuals that embody the very concept of organizational decentralization and ICOs that are nothing more than the old IPOs and I will cite the most famous scams that hackers have pulled off exploiting the weaknesses of these two. Afterward we will dive into Liquidity Pools to go fishing for AMM algorithms, which I will try to explain to you through a fable, without using complicated mathematical formulas or programming sequences, using a method similar to that of Nobel Prize-winning physicist Richard Feynman, i.e., only if you can explain a difficult topic in simple words that even a 10-year-old can understand, it means you really get it. We will also touch on cognitive biases that make it difficult to objectively evaluate the reality around us and that cause us to fall into error often, but not always thanks to the heuristics explained by Gigerenzer.