Mark Moss argues borrowers often accept higher interest rates from centralized lenders because they get insurance and clear risk profiles, unlike opaque DeFi protocols. Most investors chase returns without accounting for risk, while hedge funds hedge every position to quantify and reduce downside exposure.
The 4th thing that I'm looking at is the cost of credit. Why would I want to pay 5% in some DeFi protocol that I can't understand the risk, that has no guarantee, when I could pay 8% to a centralized company that I could trust that would give me insurance against it? Well, I'd gladly pay 3 extra points to have a guarantee insurance contract than get something a little bit cheaper because of the risk. You see, most investors don't think about risk. They always think about what is the return I can make without the risk. Think about a hedge fund. So, professional investors on Wall Street have hedge funds. But think about what that even means. Hedge fund. Hedge is the first thing. Every position is hedged. Every position goes out with a known quantified risk. And the reason why they do that, they hedge it, it does potentially lower the returns they could make, but it also lowers the downside.
