Much of the 2007/8 crisis was caused by derivatives and other margined (leveraged) financial contracts between banks and other institutions meaning there were huge liabilities that were not well understood, or even understandable (no global ledger or database, public or not). When the crisis hit, no one knew how exposed anyone else was and thus nobody wanted to extend credit to anyone else, margin requirements went up, and margin calls got more urgent.

Given time, things were nowhere near as bad as you could have been forgiven for thinking at the height of it. But the risk created by the fact nobody knew that caused the credit “crunch” and liquidity to dry up, and while banks were bailed out and recovered, the downstream impacts were horrendous.

That scenario simply isn’t possible even with the craziest, risky-as-shit defi protocols. You can see how much is at risk in every contract for every address, reports could be built automatically, and the risk is defined by the code, there is no ISDA agreement or OTC contract that might cause someone to come along and say you actually owe a bunch more money than you put at risk, and every cent (or satoshi, or whatever) of collateral is accounted for.

So it’d have helped a lot. Albeit the whole financial system would look quite different to how it does today (that’s the goal!).

Also, although the general principles are good and the primitives are increasingly in place, the protocols (financial products) in defi are mostly still “toys” and not, for the most part, ready to replace the current system. There is no technical reason why they can’t though, and progress in that direction is happening even if a lot of defi doesn’t make it look that way.

I’m not an economist or banker. Other people will have better answers. I’m sure there’s a lot of excellent stuff we can use in existing systems. But I just don’t hold it as a precious untouchable thing. People tell me they are scared crypto is dangerous, but we’ve already been badly hurt by the current system I’m not gonna apologise for trying something else.

I think a key idea to pursue is how we could provide privacy for individuals and transparency for institutions/corporations.

And I think it’s important to try ideas. Try something, anything. Accept that most things will fail, that 90% will be shit. Break things, take things apart and rebuild them, remake old ideas anew. Take the same energy i have to getting mods to run in a game, or monitoring the rain in my garden and doing it to money and banking and lending, community currencies, universal basic income, trust networks, etc.

That’s not to say don’t be critical, there is a lot to question and weird speculation(imo a result of the abusive financial system we live in, it didn’t just appear with crypto) but hackernews could do with more hacker mentality on crypto imo. It’s a massive design space for people to try out their ideas for money and debt and gift giving and public services and taxes and where digital worlds and communities meet real world politics and institutions and economies.

I’d like it if my bank was hentai death metal themed not hsbc blandness. And that I can build my own savings account logic on top of it that automatically sends half the profit to animal charities. I’d like to be able to spin up an instant bank account for my new guild of strangers around the world at the click of a button so we can share materials and grow together. I’d like my money to be pictures of dogs not pictures of a president or queen. I don’t think these ideas are silly, dangerous, or impractical. And it doesn’t require the permissions of tradfi. Just public and private keys. Wild.

It wouldn’t have. CoinBros don’t understand that IOUs (debt) have existed across human history and will likely continue to exist. And that most economic activity is done through debt.

Once a set of “trusted” actors can issue debt, you have monetary expansion.

In Crypto, we have Coinbase, Binance and Tether - the defacto crypto banks. They have the ability to expand the crypto money supply and promise IOUs multiples in excess of their true deposits.

If you do want to learn how this works with defi, look at DAI and those loans which are based on overcollateralization and incentives for people to hunt for and liquidate others who don't have enough collateralization.

2008 was caused by starting with undercollateralized loans enabled in part by fake rating agency ratings, and failure of regulators to regulate. That system failed and the backstop FDIC can only write checks up to around a 3% failure.