# Attempted Solutions

# Centralization, Liquidations, and Credit

  1. Centralization

"FTX is Fine. Assets are fine." - Sam Bankman-Fried

The downfall of firms like Genesis, BlockFi, and Celsius underscored the dangers of unsecured, unhedged lending to bad actors such as 3AC, Alameda, FTX and others.

These bad actors also counted assets multiple times, a tactic most obviously exemplified by Bill Hwang, who exploited numerous banks for increased leverage, leading to swap positions exceeding his deployable funds.

Borrowing frameworks should ensure these types of practices are averted in a secure, transparent, and systematic way.

  1. Liquidation-Driven DeFi

“Everyone has a plan until they get punched in the face” - Mike Tyson

Numerous successful DeFi protocols have cropped up in the past few years such as AAVE, Compound, and MakerDAO, all of which help users borrow against their assets. These work incredibly well and have created a multi-billion dollar swell in DeFi TVL.

However, when prices decline, borrowers are liquidated, which means their assets are sold at the lows in order to cover their debt to the protocol in a worst case scenario, which triggers taxes and precludes them from participating in any recovery from such a liquidation cacade. Liquidations have a tendency to seem highly unlikely until they suddenly aren’t.

  1. Credit-Risky DeFi

"Credit is a system whereby a person who can't pay gets another person who can't pay to guarantee that he can pay." - Charles Dickens

Various other DeFi protocols have attempted to solve this by introducing credit risk. However, in a world built on trustlessness with few mature identity solutions in place and minimal social and economic consequences for default, it is difficult to build a functional credit system. We hope to see this issue tackled in the near future.