The Crypto Degens Have Learned Nothing
Exploring the dangers of the blind investment frenzy in Blast, drawing parallels with past crypto failures, and questioning the wisdom of trusting unknown entities.
In the wake of Blast's meteoric rise to $500 million in Total Value Locked (TVL), the crypto community finds itself at a familiar crossroads, faced with a choice between excitement and caution.
The recent history of digital assets has been a roller coaster of highs and lows, marked by spectacular successes and equally dramatic failures. In this context, the enthusiasm surrounding Blast, a new Layer 2 solution on Ethereum, is both understandable and concerning.
The allure of Blast is undeniable. Spearheaded by Blur’s' ‘Pacman,’ it promises innovation with a native yield generation model for ether and stablecoins. Yet, beneath the surface of this rapid growth lies a web of complexities and risks that warrant a deeper look, especially considering the platform has yet to enable withdrawals and is controlled by a multisig contract with anonymous signatories.
I wrote on Unchained:
One significant concern is that Blast has not yet enabled withdrawals, meaning that funds are essentially locked within the platform. Withdrawals are scheduled to be enabled on February 24 of the next year, raising questions about liquidity and control over assets in the interim.
Further complicating the situation, the control of Blast is currently vested in a multisig contract, managed by five signer wallets with unknown identities. This setup adds another layer of uncertainty, especially since Blast, at this stage, lacks key features like a testnet, transactions, bridges, rollbacks, and sending transaction data to Ethereum.
“Oh, it’s backed by Paradigm, no worries…”
The comparison with the TerraLuna debacle is unavoidable. There, too, was a project buoyed by significant venture capital backing, including from prominent names in the industry. The narrative that such backing equates to security and stability has been proven dangerously misleading. TerraLuna's collapse served as a stark reminder that high-profile support does not immunize a project against failure.
Investors pouring funds into Blast might be riding a wave of optimism fueled by the project's association with Paradigm and other notable backers. But this optimism overlooks a critical lesson from crypto's history: the importance of due diligence and the dangers of blind trust.
In the case of Blast, the lack of transparency regarding the identities behind the controlling multisig wallets adds an additional layer of risk. Trusting unknown entities with substantial assets is not just a leap of faith; it's a plunge into an abyss of uncertainty.
Funnily enough, there's a paradox at play here. Investors, enticed by the prospects of an airdrop or other rewards, may indeed find short-term gains. Such outcomes, while gratifying, can mask the underlying risks and lead to a false sense of security. They reinforce a hazardous narrative in the crypto space: that high risks are just stepping stones to high rewards.
However, the fundamental question remains: Is this the revolution in finance that the crypto world promised? By entrusting assets to an opaque structure controlled by unknown entities, are we not regressing rather than progressing? Traditional banking, with all its flaws, at least offers a degree of transparency and regulatory oversight.
In contrast, platforms like Blast ask users to gamble with their funds, relying on nothing more than the reputation of backers and the allure of potential rewards.
As the crypto industry matures, it must move beyond the reckless excitement of the early days. The true revolution in finance that cryptocurrency and blockchain technology promise lies in creating systems that are not only innovative but also transparent, secure, and trustworthy. Until then, projects like Blast, for all their technological prowess and backing, represent a step backwards – a reminder of the industry's ongoing struggle to balance innovation with responsibility.