When the DeFi hype was on the rise (we wrote about this in Wednesday's Market Commentary), the news about the blacklisting of an USDC address served to douse the DeFi space with some cold water. What happened? The Block published a story about an Ethereum address holding 100,000 USDC stablecoins being blacklisted by the issuer, based on a request from law enforcement.
Further checks revealed that Tether, the oldest and by far largest stablecoin already has 39 blacklisted addresses, holding about 5.5mio$ in total.
Well, this should not come as a surprise to anyone. The blacklisting capability is part of the smart contract code, and those stablecoins are issued by some well-known companies, which are required to adhere to the respective laws. Much more interesting are the issues arising for the DeFi space as a consequence of this. It turns out that your DeFi platform is only as decentralised as your least decentralised part of it. One might argue that DAI, the most commonly used stablecoin on DeFi platforms, is “truly” decentralised. As this is somewhat true, you might be surprised to learn that USDC is used as collateral for the creation of DAI (12% of total ETH collateral, according to The Defiant).
I wonder if there is any DeFi platform out there without a link to any centralised service or component… Please let me know if there is!
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