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Hayden Adams, the founder of Uniswap, is convinced that banks are “massive scams” compared to decentralized finance (DeFi) protocols.
Hayden Adams Thinks Banks Are Scams
In a recent tweet, Adams criticized banks’ low collateral requirement, adding that they also pay only a “tiny percent” of their revenue to depositors. The founder was also concerned about banks’ ability to “rug” users anytime.
If you compare banks to DeFi protocols you realize what a massive scam they are
Only 10% collateral requirements? Only a tiny fraction of returns paid out to users? Users can get rugged at any time?
Feeling bad for everyone negatively affected by degen banks 🙁
— hayden.eth 🦄 (@haydenzadams) March 11, 2023
Commercial banks are regulated entities. In the United States, they can comply with state or federal laws depending on their licenses.
But considering the fractional reserve system, banks must maintain a certain percentage of user deposits as collateral. Accordingly, deposits may have to wait longer in case of a bank run, a spike in customers’ withdrawal which drains the financial institution’s liquidity.
The 10% collateral requirement means only a small percentage of the total deposits are available for withdrawal. Hayden believes this system is flawed. In crypto and DeFi, the mechanism is different; for instance, they must maintain 100% collateral at any point.
Banks loan the remaining 90% of deposits in this fractional reserve system at higher interest rates. However, the yield distributed to holders of saving accounts is relatively lower. While this is advantageous for banks as they don’t have to hold a vast amount of capital while also being open for regulation, the end user, the depositor, is inconvenienced if these banks fail.
Last week, Silicon Valley Bank (SVB) experienced a bank run last week, and it was placed under California regulators’ Federal Deposit Insurance Corporation (FDIC) receivership. Many users and businesses, including Circle, the issuer of the fiat-backed stablecoin, USDC, had exposure and couldn’t access funds over the weekend.
It is this limitation, and the fragility of banks that Hayden thinks make the very base layer of the global financial system a “massive scam.” The United States Federal Reserve has since stated that it will only bail out depositors, not the bank.
Uniswap Drew Users After USDC De-Pegging
DeFi protocols are autonomous and guided by smart contracts. Platforms like Uniswap operate every day of the week on several blockchains, including Ethereum, facilitating swaps.
Over the years, Uniswap has emerged as one of the largest decentralized exchanges in the world. UNI is its governance token.
Amid the de-pegging of USDC, Uniswap posted the highest daily trading volume, reaching $11.41 billion.
Yesterday had the highest daily USD volume ever on the @Uniswap Protocol!
$11.84b, almost double the second place day.@DuneAnalytics: https://t.co/KMQxfmlIlo pic.twitter.com/pn9X9yBNHq
— Austin Adams (@AustinAdams10) March 12, 2023
As of writing on March 13, Uniswap had a total value locked (TVL) of $3.56 billion, according to data from DeFiLlama.
