Decentralization
Depending on your prior assumptions, the homepage flat-out saying WUSD is not decentralized might've confused you. Make no mistake, it isn't and cannot be, and neither is any "decentralized stablecoin" (hereafter fiatcoin wrapper) critically dependent on some fiatcoin. Why? What is "decentralization"?
You've probably heard, if not used, that claim before. Though it is not without some merit, it's far too weaselly to base any honest discussion on.
A more grounded term is "coercibility". How vulnerable to coercion, especially at the behest of outside forces, is an application? What coercion means here is self-explanatory but to avoid ambiguity, the implication is: does
- there exist an identifiable legal person (or persons)
- at whose head a (metaphorical) gun can be pointed
- causing them to alter the functionality of an application
- and in a manner where users have no recourse but to hope they exit fast enough
? A simple, robust test. This isn't particularly novel and is covered much more thoroughly in this fairly old yet ever-relevant fantastic article.
Using fiatcoins — upon which every fiatcoin wrapper depends — as an example, no sane person would honestly deny these things are entirely coercible. Indeed, all fiatcoins are fundamentally identical, differing only in how obviously they express the extent of their immediate control:
Evident from the table, all 6 fiatcoins are upgradable. This is the most critical property of a fiatcoin as it allows their respective issuers to adapt to whatever "compliance" requirements and regulations that may eventually be required of them.
One of the principal parties behind the USDC fiatcoin states as much
Coercing a fiatcoin would be as trivial as going after such an issuer — again, an identifiable, legal entity — and having them upgrade the contracts to implement the required controls with, critically, users having no tangible recourse to stop it.
*while it may currently lack this, upgradability makes it trivial to implement
No one cares about decentralization until it's too late
The real substance of decentralization is only really ever seen when push comes to shove. For this reason, people more often than not take it for granted until it's too late and then complain about their supposed misfortune rather than realizing their consequences of their complacency.
Suppose [really bad entity] converted [lotsa money] to WUSD in order to avoid being "frozen" (a function typically served by the fiatcoin wrapper, DAI). Afterwards, WUSD is deemed "problematic" and, at the very least, stopping [really bad entity] is greatly desired.
Yes, WUSD is immutable and lacks the usual "governance"/multisig games that would be coerced into changing things as in the DAI and FRAX fiatcoin wrappers that are both managed by trivially identifiable entities. But it would be naïve and presumptuous to conclude that that means Wrapped USD is resistant to coercion.
Why? Simply refer back to the table and it should be clear that gently nudging the issuers of its underlying fiatcoins — which make Wrapped USD — yields the same outcome.
A once (and still) common excuse to this reality, especially from principal parties behind the many fiatcoin wrappers that try to trivialize their critical dependency on these necessarily censorable assets, was that fiatcoin issuers wouldn't do this because "it's a pool of funds" and/or, at the very least, notify the "ecosystem" beforehand. This has always been a dishonest and dubious claim, not only when speaking in historical contexts but also most recently evidenced by Tornado.
This is a classic attempt to muddy the waters typically used by people involved in, or responsible for, projects that would end up being cast in an unfavorable light if a more what constitutes decentralized were more defined and less vague.
Yes, the vast majority of applications that sell themselves as defi are nothing of the sort, with some going as far as to openly embrace capture today. Of course, they can do this with impunity because, for better or worse, the principles of the market are for sale and decentralization is merely something to talk about. Uncomfortable truths are redefined away and people hope the problem goes away but it won't. It might make sleep better though.
Last modified 3mo ago