Report on Lightning Network-Powered DeFi and NFTs Dismissed Even by Bitcoin Advocates
A discussion has emerged about possible use cases for the Bitcoin (BTC) Lightning Network, and whether the network could potentially support decentralized finance (DeFi) applications and non-fungible tokens (NFTs). The discussion followed the publication of a paper by three well-known bitcoiners.
The paper, titled On Impossible Things Before Breakfast, included what the authors called a “post-mortem on Terra” and a “pre-mortem on DeFi,” in which a vision for a future for the Lightning Network was laid out.
The paper was written by Ross Stevens, founder and executive chairman of the Bitcoin-focused financial services firm NYDIG, popular Bitcoin proponent and Castle Island Ventures partner Nic Carter, and former investment manager at Baillie Gifford & Co., Allen Farrington.
Among other things, the paper said that “all algorithmic stablecoins will fail,” and argued that this is true no matter how well-intentioned they are.
Additionally, the three authors predicted that “the vast majority” of DeFi projects – as they exist today – will eventually fail.
The paper noted that the problem with DeFi is that it lacks a lender of last resort, and thereby “(re)creates the problems solved by central banks” in the fiat economy. Bitcoin, on the other hand, “solves the problems created by central banks,” according to the authors.
“Lightning facilitates the development of an emerging ecosystem of Lightning-based financial products, called LiFi (“Lightning Finance”), which leverage the security, transparency, and decentralized nature of Bitcoin,” the authors further argued.
They went on to propose “stablecoins, NFTs, and tokenized securities” as three “powerful, emerging LiFi asset issuance use cases.”
DeFi applications have so far not taken off
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