DeFi’s Fairness Questioned as ‘Super Users’ Dominate

Massive growth in decentralized finance over the past three months has been accompanied by  a big increase in the number of ‘super users’ who dominate the sector.

Along with the prevalence of trading bots, it has raised questions over the fairness and openness of the DeFi ecosystem. Messari researcher, Mason Nystrom tweeted earlier today about the big jump in super users:

“DeFi super users (users with over 100 transactions) have grown nearly 20% in just three months. Uniswap alone grew 50% in Q2 and has 1625 super users.”

Citing the just-released ConsenSys quarterly DeFi report, the researcher noted that after Uniswap, Kyber had the next-largest user base with 916, and Compound ranked third with 367 super users. Those with less than 300 super users included Maker, Augur and Bancor. All up, there were 1,884 super users in Q2, up 18.8% from Q1.

The report defines super users as individuals who use DeFi platforms to a ‘more consistent and robust degree’. They may use advanced trading software, such as bots, to generate faster and more consistent profits (although this was not directly specified). Super users are likely to be those with more money to invest and those seeking quick returns on arbitrage opportunities or flash loans.

Regular Joes sidelined

Regular users by contrast make just a few transactions and usually leave their crypto locked up as collateral to take advantage of the interest and token distribution incentives. Skyrocketing Ethereum network fees recently may also put off regular users from making transactions as fees cut into a greater share of their profits.

The findings suggest that super users are using platforms such as Uniswap, to make multiple transactions for arbitrage purposes. The largest overlap in shared users is between Uniswap and Kyber with 15,099 overlapping users, an increase from 37% in Q1. Compound and Uniswap had 4,678 overlapping users for the period.

Is DeFi really fair and open?

The dominance of super users in DeFi raises questions of fairness. Synthetix founder, Kain Warwick touched on this issue in a series of Tweets yesterday suggesting that a fair and efficient market could lead to ‘unfair’ seeming results.

“Something that comes up fairly regularly in the Synthetix discord is the concept of efficiency + openness vs fairness. If a system is designed such that it is totally open, then players (e.g. liquidation bots) with a preexisting advantage will dominate, is that fair?”

Ultimately Warwick concluded that fair and efficient markets inevitably saw the big guys amass all the capita. “Many people associate fairness with equal outcomes, but efficient systems actually have a tendency to increase inequality,” he noted. “They favour the dominant players.”

Exploiting the system

In the latest edition of the Defiant, Camila Russo observed that the BZRX listing on Uniswap also appeared to be manipulated by those running bots. 

“Less than 60 seconds after the Uniswap liquidity pool was seeded, BZRX price jumped 12x … the main ‘winners’ were those running scripts to purchase BZRX in the same block it became available.”

It has also been suggested that the Ethereum network may have been ‘spammed’ to prevent others executing their transactions. DeFi is still in its infancy but with these trends already emerging it may not be the utopia for financial freedom that some are hoping for.