Quantstamp Labs
February 22, 2021

The Situation

Diamond hands, short squeezes, bailouts—these terms became mainstream in January 2021 as the story of a grassroots Reddit community disrupting a powerful hedge fund went viral. However, going beyond the headlines, what happened with the Robinhood saga creates a very strong and compelling case for why Decentralized Finance—DeFi—offers solutions to problems that stem from a centralized, inefficient system that lacks transparency.

To understand the context that led to this pivotal moment, it’s important to know that hedge funds often use combinations of shorts & options—and some of them, most notably Melvin Capital—had been shorting a company called GameStop for years. The story began to unfold when some individuals from WallStreetBets—a loosely organized but high-spirited Reddit trading community—noticed excess shorting relative to the company's free float. Essentially, more shares of $GME were being lent to short sellers than were actually available. WSB traders started buying up $GME, massively driving up the stock price. As this happened, what may have begun as simply an opportunity for Reddit investors to make a profit turned into a more formal strategy to take down a hedge fund. 

With such a huge rise in stock price over a short period of time, institutional investors were rushing to cover their positions, further exacerbating the upward tick in $GME price and creating a short squeeze. Other stocks, such as movie theater chain AMC Entertainment, also became a target due to having a high amount of shorted stocks in comparison to its float. AMC shares could have been bought for $2 at the beginning of January 2021; by the end of the month, they had risen more than 10x.

Over the next few weeks, the price of these stocks saw a meteoric rise, leaving these hedge funds billions in debt. Melvin Capital, the biggest short seller, was close to liquidating their position when Citadel and Point72 infused close to $3 billion to help cover their position. Later on, sources would discover that Citadel Advisors LLC not only had a significant short position in $GME, but also stood to make money as the stock went up and down. Arguably, large hedge funds exploiting loopholes for financial gain wasn’t shocking news—but the events that unfolded over the following days would be.

On January 28, 2021, after GameStop stock had risen by more than 400%, several mainstream brokerage platforms—including Robinhood—shut down the ability to buy shares of GameStop and other trending stocks, “in light of recent volatility.” With this move, users only had the choice to liquidate or close positions. For an app with a mission to “democratize finance for all,” this did not sit well with users or do Robinhood any favors in terms of public sentiment. 

This controversial move did not go unnoticed, but in fact became a viral story. It captivated people around the world who hadn’t even heard of Robinhood, and incited anger among the retail investors closed off from buying stock that larger investment funds still had access to.

The Pivotal Moment

With Robinhood users barred from buying certain stocks, a social movement began to gain traction. While many people may have agreed that traditional finance is rigged in favor of the powerful, this fact became incredibly clear and impossible to ignore. However, after seeing the pitfalls of a centralized system in action, it presented the perfect opportunity for the rapidly-growing DeFi space to demonstrate its value proposition.

In the DeFi space, financial applications exist that allow users to trade without the need of a third party like Robinhood. When users trade assets on Uniswap, they maintain complete control of their assets the entire time, operating under a transparent ruleset that applies to everyone. On Uniswap and other DeFi applications, users can invest money without having to rely on a bank. It is also impossible for any company or third party to prevent a user from buying an asset.

Robinhood’s decision to halt the purchase of various stocks incited outrage in many people, but however you describe it—unethical, disingenuous or hypocritical—it was something that as a platform owner, they were able to do.

What is DeFi?

DeFi is Ethereum’s Decentralized Finance sector, describing a collective mix of non-custodial protocols and projects. With DeFi, users can access lending, borrowing, derivatives, and exchanges just like traditional finance. However, instead of centralized entities like Robinhood making decisions, self-enforceable and automated smart contracts run these decentralized apps (dapps). Because code is public and open-source, it offers true transparency—and, users can be confident that their assets can’t be frozen or their trades limited. 

DeFi isn’t perfect. It still needs to scale to achieve the volume of transactions that take place in traditional markets. And, with the ever-increasing amount of funds running through DeFi protocols, projects need to take security seriously. However, the fact remains that DeFi applications can be programmed to be open, permissionless, and operate 24/7 in a completely non-custodial fashion. In DeFi, users unequivocally maintain control of their own funds.

DeFi Advocates

In light of the Robinhood saga, numerous proponents of DeFi have vocalized their thoughts online. Mark Cuban, an American billionaire known for his show Shark Tank, did an AMA with the WallStreetBets community, talking about the largely untapped potential of DeFi and Non-Fungible Tokens (NFTs). In February, Cuban also came onto The Defiant podcast, explaining why he’s bullish on DeFi and his thoughts on ETH as a store of value. Other Twitter influencers suggested people look into Ethereum and its decentralized financial system (and possibly make a lot of money in the process).

One thing is certain: DeFi has continued to experience incredible growth. At the beginning of February 2020, DeFi users celebrated reaching the milestone of $1B total value locked (TVL). Fast forward 12 months, and there is now over $40B TVL. Now, $1B TVL is required for a dapp to even make it into the DeFi Pulse Top 10.

As of February 17, 2021, there is over 40.3B USD locked in DeFi.

While growth in the DeFi space is thought to be driven predominantly by retail investors, an increasing number of institutional clients have taken positions and begun exploring the DeFi space. On February 8, 2021, the Chicago Mercantile Exchange (CME) launched a futures contract on Ether, three years after Bitcoin futures went live. This move marks an interesting milestone and seems to signal increasing interest from the institutional crowd. 

While there are certainly challenges the DeFi sector faces—user experience, volatility, scalability, and more—it also has the potential to completely transform the world of finance.

Let the People Trade
Have Control and Ownership of Their Money

Staff Writer Derek Thompson recently wrote in The Atlantic, "Waging war against Big Finance by becoming a day trader is like waging war against the casino industry by becoming a gambling addict. Even if you’re winning, you’re still participating in a broader casino economy—buying drinks, eating dinner, throwing chips to dealers, filling out tables—that, over time, guarantees that the house keeps winning." 

While the story of the WallStreetBets community banding together to disrupt powerful hedge funds may be inspiring, it doesn’t solve the problem: any centralized system with intermediaries takes away control from the user.  

Vlad Tenev, Robinhood’s CEO, still maintains the move was done in good faith—"We absolutely did not do this at the direction of any market maker or hedge fund or anyone we route to or other market participants.” But whether his claim is true or not, traditional finance has forever been exposed for its worse traits: being siloed, non-transparent, permissioned, and built to benefit the powerful. While any new technology comes with challenges to overcome, DeFi’s potential has never been more clear: it’s public, global, open, and offers an entirely new world that gives power back to the people. 

Quantstamp 实验室



要了解导致这一关键时刻的背景,重要的是要知道对冲基金经常使用空头与期权的组合--其中一些基金,最著名的是Melvin Capital--多年来一直在做空一家名为GameStop的公司。当WallStreetBets--一个组织松散但热情高涨的Reddit交易社区--的一些人注意到相对于该公司的自由流通股而言,有过多的做空行为时,故事就开始展开了。从本质上讲,借给卖空者的GME股票比实际可用的多。WSB交易员开始买入$GME,大幅推高了股价。随着这种情况的发生,最初可能只是Reddit投资者获利的机会,但后来却变成了一个更正式的策略,即击垮一个对冲基金。 


在接下来的几周里,这些股票的价格出现了暴涨,让这些对冲基金负债数十亿。最大的卖空者梅尔文资本(Melvin Capital)在接近清仓时,Citadel和Point72注入了近30亿美元来帮助他们补仓。后来,消息人士会发现,Citadel Advisors LLC不仅持有大量的GME空头头寸,而且随着股价的上涨和下跌,他们还能赚到钱。可以说,大型对冲基金利用漏洞谋取经济利益并不是什么令人震惊的新闻--但随后几天发生的事件却令人震惊。











鉴于Robinhood的传奇,众多DeFi的支持者在网上发表了他们的想法。美国亿万富翁马克-库班(Mark Cuban)以其节目《鲨鱼坦克》(Shark Tank)而闻名,他与WallStreetBets社区做了一次AMA,谈论了DeFi和非可变代币(NFT)很大程度上尚未开发的潜力。2月,Cuban还来到The Defiant播客,解释了他为什么看好DeFi,以及他对ETH作为价值存储的看法。其他推特影响者建议人们研究Ethereum及其去中心化的金融系统(并可能在这个过程中赚到很多钱)。

有一件事是肯定的。DeFi持续经历着不可思议的增长。2020年2月初,DeFi用户庆祝达到了锁定总价值(TVL)10亿美元的里程碑。快进12个月,现在已经有超过400亿美元的TVL。现在,一个dapp要想进入DeFi Pulse前十名,甚至需要10亿美元的TVL。





工作人员作家德里克-汤普森(Derek Thompson)最近在《大西洋》(The Atlantic)杂志上写道:"通过成为日间交易员向大金融业开战,就像通过成为赌徒向赌场业开战一样。即使你赢了,你仍然参与了更广泛的赌场经济--买饮料、吃晚餐、向发牌员投掷筹码、填满赌桌--随着时间的推移,保证了赌场不断赢钱。"


Robinhood的首席执行官弗拉德-特涅夫(Vlad Tenev)仍然坚持认为此举是出于善意--"我们绝对没有在任何做市商或对冲基金或我们路由的任何人或其他市场参与者的指示下这样做。"但无论他的说法是否属实,传统金融业永远暴露出其更糟糕的特质:孤立、不透明、被允许、为权贵利益而建立。虽然任何新技术都有需要克服的挑战,但DeFi的潜力从未如此清晰:它是公开的、全球性的、开放的,提供了一个全新的世界,将权力还给人民。 

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