DeFi’s Existential Problem: It Only Lends Money to Itself

Remember how the banking system self-destructs every few decades? Now imagine if banks only lent money to finance other banks, and you may get a notion of the house of cards that is “decentralized finance,” or DeFi.

Cryptocurrencies keep nosediving, with bitcoin trading steadily below $20,000 for the first time since 2020. The chaos has spread to DeFi: Celsius, a top crypto lender with assets of around $20 billion, was recently forced to freeze deposit withdrawals. Last week, crypto exchange FTX said it was bailing out one of Celsius’ troubled competitors, BlockFi, with a $250 million loan, not long after rescuing crypto broker Voyager Digital.

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