Even the ever-noisy crypto space has been overrun with comments about the Gamestop (GME) saga playing out in traditional finance.
For those that don’t know, a quick recap:
- Gamestop, the video game retailer, was short over 140 percent of the stock’s float by large hedge funds expecting the stock to go down.
- Retail investors on WallStreetBets, the famous stock trading subreddit, took notice of the trend and began to buy call options on the stock.
- The stock began to shoot higher heading into 2021, culminating in a massive squeeze higher over the past week.
- Due to the fact that there were so many shares short of GME, those that were holding those positions went underwater.
- Some short holders had to close their positions or get bailed out by different entities.
- Due to the influx of trading demand and uncertainty about the legality and risk of Gamestop’s price action, brokerages have begun to shut down the trading of GME across the U.S.
It is by far the biggest story in finance of 2021. Crypto investors, especially DeFi bulls, are taking notice of this trend as a sign that having on-chain financial applications is the future.
“Great thread on WSB and RobinHood. The problem: the system is rigged. The solution: Decentralized Finance. It doesn’t get any clearer than this.”
The sentiment that the system is “rigged” comes as WallStreetBets and the traders in the ecosystem have begun to face issues in using platforms, from Discord and Reddit to the trading platforms like Robinhood themselves.
DeFi, by comparison, is seen as trustless and fair because it does not arbitrate if users can or cannot make a trade. Instead, the qualifications one has to interact with different platforms, whether that’s Uniswap on Ethereum or another app on a new blockchain, is based on their ability to pay the transaction fee.
Even if the Gamestop saga doesn’t drive capital directly to DeFi, many have concluded that it shows how much space the decentralized finance space has to grow.
Santiago Roel Santos, my boss at ParaFi Capital, put it nicely when he noted that Gamestop’s market capitalization (at least at the heights of the rally yesterday) was practically larger than all DeFi coins currently in circulation.
For context, CryptoSlate market data indicates that there is around $36 billion worth (subtracting certain names) of capital in DeFi coins right now. This is only a few percent of the circulating cryptocurrency market capitalization.
The total market cap of DeFi is still less than Gamestop $GME.
One is a struggling Dallas-based video game retailer, the other is core infrastructure of a new global, decentralized financial system.
— Santiago R Santos (@santiagoroel) January 27, 2021
Not ready yet?
The prevailing sentiment is that DeFi is the obvious alternative to the issues of centralized systems, though we may not be ready, some say.
Prominent researcher “Hasu” shared that most crypto projects are not yet censorship-resistant. Also, to some, the transaction fees may it basically prohibitive for smaller traders to ever made trades.
Not a fan of seeing people shill Defi as a Robinhood substitute here. Same as Bitcoin wasn’t ready for Wikileaks in 2010, Defi is not ready for more mainstream adoption. Most projects are not yet censorship-resistant, I say that as a big Defi fan. Give them more time.
— Hasu (@hasufl) January 28, 2021
Disclaimer: This author is an analyst at ParaFi Capital. ParaFi Capital may hold positions in assets mentioned in this article. The views displayed in this article are opinions of the author—and the author only.
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