Opinion by Dr. Penelope Fibonacci, seasoned blockchain researcher and author.
The Lindy Effect in crypto is an interesting conundrum: decentralization was meant to eliminate the need for trust, but it seems that users often place their faith in brands rather than code. It’s akin to trusting a self-driving car more because Tesla made it, even if the technology itself is unproven.
But let’s not forget, just as I once tried to explain to my cat about Fibonacci sequences, sometimes things aren’t always what they seem. The Lindy Effect, when applied inconsistently, can lead users astray. It’s essential to understand how it applies to both protocols and brands, and where to look for trustworthy choices in the DeFi space.
What is the Lindy Effect?
The Lindy Effect, dear reader, is a principle that suggests the longer a product or idea has been around without failing, the more likely it is to continue thriving. In the context of DeFi, this can mean a protocol or brand that’s stood the test of time is more reliable than one that’s just sprung up.
Protocol-level Lindy Effect
Immutable protocols are the gold standard for accruing the true Lindy Effect, as they don’t change with updates. However, upgradeable protocols can still provide significant benefits, especially if they have a strong brand and reputation.
But remember, just like my cat learning to fetch, an upgradeable protocol may not instantly understand the complexities of DeFi. Users should be cautious and consider both the technical structure and the broader brand experience when evaluating upgradeable protocols.
Brand-level Lindy Effect
The brand-level Lindy Effect, on the other hand, grows over time as long as no exploit has been performed. A well-established brand can signal safety and reliability to users, much like how I once signaled my affection for tuna casserole to my cat (though perhaps not with equal success).
However, just as a brand can’t hide its expiration date forever, neither can a protocol. Critical incidents may be downplayed or hidden from the public, so users must remain vigilant and seek out transparent communication from their chosen brands.
How to apply the Lindy Effect
To make informed decisions in the DeFi space, users should look at both the protocol’s technical structure and its brand reputation. As the great Nassim Taleb once said: “The only effective judge of things is time.” Or, as I like to say, “If at first you don’t succeed, try again—and if it still doesn’t work, consult a blockchain expert.”
Dr. Penelope Fibonacci, seasoned blockchain researcher and author, is known for her expertise in smart contract security and her ability to explain complex concepts to even the most stubborn of cats (though results may vary). Her latest book, “The Lindy Effect in DeFi: A Tale of Time, Trust, and Transparency,” is now available on Amazon.
Opinion by Merlin Egalite, co-founder of Morpho Labs.
As an analyst, I find it intriguing how cryptocurrencies, built on the premise of trustlessness, seem to rely heavily on trust and brand longevity when it comes to user adoption and utilization. This paradox isn’t surprising given the prevalence of the Lindy Effect in the Decentralized Finance (DeFi) sphere. In simpler terms, established brands with a proven track record tend to attract more users due to their perceived reliability and longevity, much like an old lamp that’s likely still working because it has lasted this long.
However, the Lindy Effect is not always evenly applied; at times it’s related to businesses or trademarks, and other times it pertains to the code of a specific protocol. It would be enlightening to explore how this concept can be utilized in both scenarios, and what features users should focus on when evaluating their product choices.
What is the Lindy Effect?
The Lindy Principle suggests that the longer an item such as an idea, technology, or cultural trend has endured, the more likely it is to persist in the future. Items that have withstood the test of time are expected to keep doing so.
The concept, known as Lindy’s Law, was initially proposed by Albert Goldman in a 1964 article. This principle was later used to evaluate the longevity of comedians.
“The life expectancy of a television comedian is proportional to the total amount of his exposure on the medium.”
The concept spread mainly through Nassim Nicholas Taleb’s book, Antifragile, and was extended to any type of entities that were nonperishable.
Applying the Lindy Effect to DeFi protocols
As immutable DeFi protocols are permanent and don’t spoil, we can assume the Lindy Effect applies to them.
As a protocol continues to function without significant security breaches, its likelihood of maintaining security into the future increases.
These protocols such as Uniswap v1 (launched in November 2018) and v2 (launched in 2020) have been operating without major security issues since their launch, making them excellent demonstrations of this idea. Users rely on these protocols to keep running efficiently with a low chance of being exploited.
Yet, it’s worth noting that implementing this concept within flexible platforms such as Aave, Compound, or Lido isn’t always a simple task. These systems are continually updated to improve performance, introduce new features, or rectify security vulnerabilities, which can add complexity. This crucial difference between unalterable and modifiable protocols is significant when considering the Lindy Effect.
The flaw in applying the Lindy Effect to upgradeable protocols
When a significant update or fix is implemented in an upgradeable protocol, the underlying code will inevitably change. This situation recalls the philosophical puzzle of Theseus’ ship: if a protocol’s fundamental logic is gradually swapped out piece by piece, is it still fair to label it as the same protocol?
As a crypto investor, I’ve noticed that platforms like Aave or Compound regularly undergo code updates to introduce new features or fix crucial bugs. From a Lindy Effect standpoint, each update essentially creates a new version (a new contract address) of the platform, and it’s essential to re-evaluate the risk associated with these changes. However, many users tend to view the protocol as a single, unchanging entity (due to the constant proxy address), overlooking potential new vulnerabilities that could have been introduced during these updates.
On upgradeable contract systems, this rule holds true as well. Each update to the foundation platform can disrupt the Lindy Effect within these integrations, sometimes causing them to fail entirely. A case in point is the latest Aave v3.2 upgrade, which caused problems for certain integrations based on unchangeable code that didn’t align with the new logic. To rectify this issue, the Aave team had to revert specific changes, underscoring the difficulties of creating permanent code within adaptable platforms, emphasizing the complexity of developing smart contracts on upgradeable platforms.
Absolutely, this bias isn’t limited to upgradeable contracts alone; it also extends to flexible protocols where a permanent component (a “stack”) can be replaced with a fresh, updated version.
Users tend to perceive upgradeable protocols as safer than they actually are, which can cause an error in risk evaluation. This misconception is especially dangerous in the Decentralized Finance (DeFi) sector, where unexpected weaknesses might arise from even beneficial or essential modifications.
In March 2023, the Euler’s hack was facilitated by an apparently harmless update which introduced a novel function that turned out to be crucial in executing the attack.
Brand-level Lindy Effect
Although the Lindy Effect at the protocol level resets with every revision, the brand-level Lindy Effect persists unabated so long as no vulnerabilities have been discovered or exploited.
As protocols are used over time, they develop a standing that reflects their past performance, security measures, and the skills of their development teams. Notable brands such as Aave and Compound come to symbolize safety not only due to the inherent code but also because of the trustworthiness and proficiency these entities have earned, according to Ernesto from BGD Labs.
This trust is built over the years through:
- The collective experience of developers, risk managers, and security experts
- Marketing and community engagement, who actively work to build up the brand
- Strong security practices and regular audits
- Deep understanding of code and patterns proven in other systems
In essence, people tend to rely on a protocol’s reputation to determine its safety, which serves as a helpful shortcut. However, this reliance can occasionally lead astray. Branding and stories might conceal potential hazards, while serious issues could be underreported or kept secret from the public.
How to apply the Lindy Effect
Although unchangeable protocols are the ones that can reliably exhibit the genuine Lindy Effect, it’s important to note that modifiable protocols can still offer substantial advantages, particularly when they are supported by robust and reputable brand names.
In my research, I find that not every user is equipped or willing to delve into technical updates at the protocol level. Therefore, understanding the Lindy Effect from a brand perspective can provide valuable insights.
For sophisticated users and integrators such as protocols, institutions, or fintech companies, it’s essential to examine not only the technical makeup of a particular protocol but also its overall brand experience to gain a comprehensive understanding of the enduring strength, or Lindy Effect, of that protocol. By taking into account both factors, they can make well-informed decisions regarding where to allocate their trust.
As Nicholas Nassim Taleb wrote: “the only effective judge of things is time”.
Merlin Egalite serves as a co-founder at Morpho Labs and is a significant contributor to the Morpho Protocol. With expertise in smart contract safety, he has lent his skills to open-source projects like Giveth, Commons Stack, and Kleros. At Morpho Labs, Merlin heads the integration team, concentrating on ensuring smart contract security, nurturing developer relationships, and fostering growth by actively engaging developers.
In this post, you’ll find information that is meant for general understanding purposes only. It’s essential to remember that it should not be interpreted as legal advice or investment advice. The perspectives, ideas, and beliefs shared here belong solely to the author and do not necessarily align with those of CryptoMoon.
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2024-10-31 18:09