The story of /r/wallstreetbets is a David and Goliath story that we shouldn’t forget. The memes are great, and who doesn’t love beating Wall Street at its own game? But as the establishment rushes to protect its biggest fish, let this story also serve as a reminder. A reminder of how heavily the cards are stacked against the individuals in favour of billionaire Wall Street traders. Let it also serve as a sign for the change DeFi could bring.
For those out of the loop, this Twitter thread is a great start:
In short, the /r/wallstreetbets community found hedge funds’ predictions that the value of GameStop’s stock would fall, and launched a campaign to buy and hold as much as they could. The renewed interest in GameStop drove its stock price sky-high, meaning these hedge funds took massive losses.
As these losses began to pile up, news broke that Robinhood and other brokerages halted buying of Gamestop (GME) and other shorted stocks on Thursday, only allowing users to sell their positions.
To be clear, hedge funds could buy and sell, but on many platforms, retail investors could only sell. Thousands of people were told they could not invest their money as they saw fit.
As you can imagine, the move caused a massive wave of anger across the Twitter, the trading community and US politics:
Democrats in both the House and the Senate have announced plans to hold hearings into Wall Street’s practices and the inner workings of online trading platforms in the middle of all the controversy.
Hopefully, this is a change for the better. But the last few days have exposed the structural flaws prevalent in financial markets since before 2008’s crash.
This is a problem. A problem DeFi could fix.
People need Bitcoin because it is an asset that cannot be arbitrarily controlled by any one entity – government or otherwise.
Decentralized finance, or DeFi, can build on that.
DeFi draws inspiration from blockchain and isn’t controlled by a single, central source. It expands how a blockchain can be used from just “storing value” or “making payments” to more complex financial transactions.
When you pay with a credit card for coffee at a cafe, a financial institution sits between you and the business, with control over the transaction, retaining the authority to stop or pause it and record it in its private ledger. With DeFi, those institutions are cut out of the picture.
Of course, DeFi must also evolve to a point where it can handle a volume close to the ones traditional stock exchanges see on a daily basis. In 2020, DeFi “rug pulls” and exit scams made up 99% of all crypto fraud schemes, according to data from blockchain analytics company CipherTrace.
“FOMO is fueling growth and an urgency associated with participating in DeFi, but the DeFi space overall lacks adequate due diligence, exposing individual investors to significant risks,”CipherTrace CEO Dave Jevans
In an aside, how great was GameStop? I’ve visited exactly once, but left with a copy of Legend of Zelda: Twilight Princess, which my love affair with video games. Rest easy, old friend. This is a fitting farewell.