Chapter 14: DEFI in Action

In the previous chapters, we discussed the importance of DeFi and introduced some products within the DeFi ecosystem. However, there are still questions about the degree of decentralization of DeFi Dapps and whether they are truly used in real life. In this chapter, we will explore the operation of DeFi through two case studies that illustrate the powerful functionality and practicality of DeFi.

Surviving Argentina's High Inflation

At the Devcon5 Ethereum developer conference held in October 2019, Mariano Conti, the head of smart contracts at the Maker Foundation, gave a talk on how he survived the inflation in Argentina. Argentina's inflation rate reached 53.8% in 2019, the highest level in 28 years. This made Argentina one of the top 5 countries in the world with the highest inflation rates. ^17^

Source: TradingEconomics.com

Living in a country where the value of currency halves almost every year is very difficult. To survive, Mariano requested that his salary be paid entirely in DAI. As you may have learned from the previous chapter, DAI is a stablecoin pegged to the US dollar. According to Mariano, Argentinians place a high value on the dollar. Although the dollar also has inflation issues, it is negligible compared to the Argentine peso.

If the dollar is attractive to most Argentinians, they naturally prefer to exchange their assets for dollars to save. However, the Argentine government has imposed asset controls. Purchasing dollars is restricted, and Argentinians can exchange a maximum of $200 per month. This has led to increased demand for dollars on the black market, resulting in an exchange rate about 30% higher than the government-set rate. ^18^

In addition to purchase restrictions, the Argentine central bank exposed the names, ID numbers, and tax numbers of 800 citizens who exceeded the $10,000 purchase limit. ^19^ Furthermore, Argentinians working for foreign companies and earning in dollars must convert their dollars to Argentine pesos within 5 days.
According to Mariano, a few years ago, many Argentine freelancers preferred to receive their salaries in Bitcoin. This was very popular in the early stages before 2018 when Bitcoin prices were on the rise, but as the market declined, everyone rushed to convert Bitcoin to Argentine pesos, or their salaries would depreciate significantly. Although Bitcoin provided many Argentinians with an alternative payment method, its price volatility increased the demand for "better money."

For Mariano, DAI was the solution to this problem because it has all the advantages of cryptocurrency while remaining pegged to the dollar. What did he do with DAI? Every month he withdraws the minimum amount to pay for rent, daily necessities, and credit card bills, keeping almost no Argentine pesos.

He also uses his DAI for cryptocurrency trading, such as purchasing ETH or participating in DAI savings plans. This way, he is able to earn interest on the stablecoin. Although he acknowledges the risks of smart contracts or platform risks when using DeFi Dapps, he still believes that the risks of holding Argentine pesos are also very high.

For Mariano, receiving his salary in DAI allows him to "avoid" issues such as turmoil, inflation, and government control. This problem is not only present in Argentina; several other economies around the world face similar issues, demonstrating how DeFi provides value to people in these countries.

Click the link to watch Mariano's full talk:

https://slideslive.com/38920018/living-on-defi-how-i-survive-argentinas-50-inflation.
Uniswap Ban

Does it look familiar? (Image source: gtricks.com ^20^)
Most people may have noticed that some videos or mobile applications are inaccessible due to their geographical location or censorship. This is frustrating, but life goes on—you can download it in other regions or find a similar application.

Banning video playback, using applications, or other similar actions may not have excessive negative impacts, but banning access to banks or financial institutions is another matter. This affects those who need it the most, as they do not have a lot of spare cash on hand. Users are forced to rely on loans to cover living expenses, exacerbating other issues.

That said, there is also censorship within the DeFi ecosystem. Notably, the regional restrictions imposed by Uniswap (a decentralized exchange) in December 2019. At that time, the Uniswap team quietly updated and released its open-source code repository on Github ^21^, prohibiting access to its official website www.uniswap.exchange from certain countries (Belarus, Cuba, Iran, Iraq, Ivory Coast, Liberia, North Korea, Sudan, Syria, Zimbabwe). As a result, the website looked like this:

Due to regional restrictions, users from those countries could no longer access the Uniswap.exchange website.

Reports indicated that the Uniswap team had to do this to comply with US legal requirements, as their team is headquartered in New York. Regardless of the reason, if Uniswap prohibits users from certain countries due to geographical location, it contradicts the principles advocated by DeFi—that anyone, anywhere can access the service.

To uphold the true spirit of DeFi, the regional ban implemented by the Uniswap team did not prevent users from utilizing the Uniswap protocol—in fact, they could not do so. The Uniswap protocol is built and deployed on the Ethereum blockchain (accessible to anyone in the world). Within hours, multiple sites connected to the Uniswap protocol began to enable access, allowing banned users to continue using the Uniswap protocol.

Since the Uniswap protocol is permissionless, anyone who knows how to use it can connect to the protocol or find an interface they can use (such as the uniswap.exchange website).
The key point of this event is that although the Uniswap team controls the front end of the website (www.uniswap.exchange), they cannot control who can or cannot access the back end (the Uniswap protocol) deployed on the Ethereum blockchain.

This is a very interesting case because it embodies the advantages of DeFi protocols, which do not exist in traditional finance. An action that initially contradicted the core spirit of DeFi ultimately became a case that showcased its main advantages.

This is not the first time, nor will it be the last time, that DeFi applications face challenges. What the future holds is truly exciting!