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.

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.

Uniswap Price On March 13| Source: UNIUSDT On Binance, TradingView

Amid the de-pegging of USDC, Uniswap posted the highest daily trading volume, reaching $11.41 billion.

As of writing on March 13, Uniswap had a total value locked (TVL) of $3.56 billion, according to data from DeFiLlama. 

Feature Image From Justin Sullivan/Getty Images, Chart From TradingView

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