Editors Note: This article comes fromWebX Labs Daily (ID: gh_3bc595acebaf), reprinted by Odaily with authorization.
WebX Labs Daily (ID: gh_3bc595acebaf)
, reprinted by Odaily with authorization. secondary title The significance of DeFi (Decentralized Finance) decentralized finance is to provide traditional financial services through blockchain technology, replace the traditional financial third-party monopoly model, improve work efficiency, enhance transparency, and reduce transaction friction (fee rates generated in transactions ). In general, DeFi can integrate traditional financial models (deposits, loans, investments, etc.) into it and become on-chain finance, while relying on the unique functions of the blockchain to create new services or financial derivatives. secondary title Liquidity and the Liquidity Crisis Liquidity refers to the ability of an asset to be realized smoothly at a reasonable price. It is a relationship between the time scale of investment (the time required to sell) and the price scale (whether it matches the market price). Generally speaking, similar to the price of masks during the epidemic, the sales speed is extremely fast and the price is relatively high, which means that the market liquidity is extremely good. If you need cash urgently at this time, but it takes time to sell the RV, and the selling price deviates from the market price, it means that the market liquidity is poor. Liquidity is very important in the financial market, especially in the trading market. Liquidity (trading volume) is a very important reference indicator in the secondary market. Financial assets are like water. Only when they flow can they have value and vitality. In the secondary market The liquidity itself reflects the activity of the transaction, you can buy if you want to buy, and you can sell if you want to sell, which is the best state in the market. Liquidity Run: The term liquidity crisis rarely appears in the blockchain market. It mainly refers to the price falling below the value in the financial market, the number of market participants is declining, and asset transactions are difficult. The liquidity crisis in the blockchain system usually occurs in exchanges and decentralized exchanges. The transaction volume is too large at the same time, and the lack of liquidity in the market leads to sharp fluctuations in prices. The overall price and value deviate, and small currencies run into There is a unilateral liquidity withering (buying but not selling, selling but not buying). In addition, there are few traders of a certain currency in the exchange, and the low liquidity leads to the order book is too thin, and traders must give up one of time or price. As a result, many components in DeFi have improved or completely solved the fundamental problem of liquidity, and brought DeFi to todays heights, such as decentralized exchanges, AMM automatic market makers, lock-up funds (TVL) and lock-up funds Reuse (liquidity mining, etc.). Decentralized Exchange (DEX Decentralized Exchange) The core of the decentralized exchange is asset custody. Let’s talk about the centralized exchange first. It is the largest center in the idea of decentralization in the blockchain system. First, trade in the centralized exchange, and you must first withdraw coins or enter legal currency Purchasing fiat currency to inject initial funds, under this premise, your funds are completely out of your control, and the ownership is in the wallet of the exchange. At the same time, it also increases the pressure on the exchange. Stealing coins is already a normal event that occurs on the exchange. At the same time, any force majeure risk in the exchange will lead to the loss of the users control over their own funds (OK to suspend the withdrawal event). Decentralization first solves the problem of decentralization, peer-to-peer transactions between customers, and no longer has institutions holding huge wallets, avoiding huge risks, simplifying the transaction process and reducing transaction costs (no middlemen earn the difference). At the same time, decentralized exchanges are also facing some problems, because there is no middleman (market maker) to maintain market depth, resulting in insufficient market depth (trading volume), orders are too thin and thin to accept large orders, transactions are delayed and Transaction fees are higher. However, the decentralized exchange is still the mainstream direction of the future market. When the decentralized exchange is perfect enough, the most important openness and transparency of the transaction will be an advantage that the centralized exchange cannot catch up with. In order to achieve anonymity, openness and fairness, the industry has developed the AMM model (Automatic Market Maker Model). The difference between AMM and Tokenlon (counter quotation mode) is that the market maker is completely open, and the entire transaction process is completely on the chain, which is truly decentralized. Liquidity mining AMM also faces many problems at the same time. The pricing algorithm is based on the constant product market maker model, which leads to the arbitrage of market makers, and the market-making system cannot respond in time to external market fluctuations. The large transaction volume leads to slippage, and traders cannot predict whether the risk of slippage is within a reasonable tolerance range. At the same time, automatic market makers are used for stablecoin exchange to improve market-making efficiency, provide one-click currency listing and provide strong liquidity, which is still completely surpassing centralized institutional exchanges on another track.WebX Labs Daily (ID: gh_3bc595acebaf)
Definition of DeFi
Liquidity mining
The essence of liquidity mining is the use of locked funds (TVL) for capital reuse. From the beginning of the DeFi project, the size and success of the entire project are basically determined by the amount of locked positions, and whether the entire DeFi is recognized by the market is determined by the amount of locked positions. It is like talking about the craze of digital currency in the past. The rise of currency prices is belief , The drop in currency price is a scam. Few people try to understand what the value of the lock-up amount is, whether the high amount of lock-up amount can be exported and used to cash out the locked-up funds, and whether it is essentially another fund pool escape game. The state of DeFi at the hottest time is similar to the bull market in 2014-2015. Some market gimmicks appeared, a large amount of funds flowed into the market, and the overall effect of making money appeared. Most players entering the market did not consider the value of the market at all. , where the funds go will get a higher rate of return, but without the support of the value system, it will be a mess after the heat.
The current state of DeFi is that it cannot find enough value system support. Since the liquidity mining boom has receded, the yield rate has gradually decreased and the market has entered the tail of the bubble economy. Funds are looking for new hot spots to flow or to truly valuable projects. Rebuilding from the ruins after the market bubble burst is closer to reality and has more advantages than castles in the air.
There are two huge advantages after the market bubble bursts:
The emergence of market bubbles represents the degree of recognition of funds in the market, and proves that there are ideas and projects with great investment value in the market.
The bursting of the bubble means that the profit game of drumming and passing flowers is coming to an end. When the game is completely over, those projects that have investment value in the market but have not appeared in front of the public will gradually surface.
The following is a brief introduction to several projects based on the DeFi concept of decentralized finance that are more attractive to investors
CoFiX (DEX) and NEST oracle machine-attract centralized exchange users and provide vitality for DEX
The use of computable financial concepts reduces the risk of market makers being arbitraged, and at the same time narrows the range of slippage and spreads to make transactions more fair. At the same time, the transparency and fairness of the decentralized exchange (DEX) will be very attractive to traders. If the combination of CoFiX and NEST oracles can make the transaction speed and cost of DEX close to that of traditional centralized exchanges, it will be Great impact on the traditional market.
PoolTogether - a risk-free lottery game, attracting external users with high risk investment preferences to enter the market
The risk-free lottery operates in the same way as the traditional financial model. After the user purchases the lottery, the amount is transferred to the fund pool. After seven days, the interest generated by the entire amount will be drawn to one lucky person to obtain all the interest, and the bonuses of other buyers will be returned. A small game that will never collapse, and the fairness of decentralization will be more attractive than the lottery of traditional financial institutions.
