The next key point for the 10-fold growth of the DeFi market? These four new 'LEGO's are worth watching
Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc), Author: Chris Powers, Compile: Overnight Porridge, published with permission.
Editor's Note: This article comes from
Babbitt Information (ID: bitcoin8btc)
Babbitt Information (ID: bitcoin8btc)
, Author: Chris Powers, Compile: Overnight Porridge, published with permission.
Retail accounts were once considered a smart bet that could lead to a 10x increase in DeFi activity, and of course, this prophecy did not come true.
Building mass-market products is difficult and expensive, and while DeFi rates are back on the ground, currently only slightly higher than in the traditional financial world, the "new" users of DeFi have yet to arrive.
Growth of WBTC in Maker;
The rise of Layer 2 DEX;
dYdX’s BTC-USDC perpetual swap contract;
UMA's ETHBTC price feed synthetic token;
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1. WBTC now supports 8% of Dai stablecoins
The size of the BTC market makes DeFi seem insignificant, and the growth of WBTC seems to come from some long-term holders of BTC. It is reported that the 1,000 WBTC minted on May 11 likely came from the cryptocurrency lender Nexo Finance, which then locked the WBTC and minted the Dai stablecoin. Why do you want to do this? Alex Svanevik explained:
“Currently, Nexo charges (at least) 5.9% annualized interest for loans on its platform. But the fee for borrowing DAI with WBTC on Maker is only 1%. In other words, they can get at least 4.9% by lending DAI margin spread. Or, they could sell DAI and then lend USD — which requires trust that the DAI peg will continue to work.”
The appeal of this spread to Nexo, or any other BTC holder, is obvious. Bitcoin-based lending is big business, and while Maker is expanding the addressable market for DeFi lending, it doesn’t appear to be slowing down:
The 4 million Dai stablecoins also seem to be mortgaged by Nexo Finance. WBTC collateral on the Maker platform is currently approaching the $10 million debt ceiling.
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As of now, almost all major developments in the DeFi DEX field revolve around liquidity pools. Kyber and Uniswap (and Bancor) pioneered the field of automated market makers (AMM), and another major development in the DEX field in the past year is the rise of DEX aggregators, examples are 1inch, DEX.AG or 0x Liquidity API.
Rising gas prices and increasingly sophisticated traders are pushing more investors towards Layer 2 solutions, which are moving from the theoretical stage to the practical application stage. IDEX and Synthetix have released Layer 2 demo products, while Loopring has been launched on the Ethereum mainnet. Due to the continued high gas price, these Layer 2 solutions are benefiting.
Of course, the Layer 2 solution sacrifices composability for transaction speed, so while DEX transaction volume may grow, it may not have DeFi spillover effects. In fact, they may resemble centralized exchanges:
The good news for DeFi is that this will represent a new area of growth: sophisticated traders.
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3. dYdX’s BTC-USDC perpetual product
We know that Bitmex’s perpetual trading is the most popular derivative product in the cryptocurrency industry, so the BTC-USDC perpetual product launched by dYdX is big news for the DeFi ecosystem. Since its launch, dYdX’s BTC-USDC perpetual trading pair has traded close to $25 million, and its average transaction size has increased significantly:
Two thoughts:
The market capitalization of USDC and USDT (Tether) both experienced explosive growth in 2020, and they are gradually being integrated into financial products. At present, BTC futures are increasingly priced and settled in USDT, and USDC option products can increase market diversification, which is good news for USDC.
Funding rate - Perpetual swaps have no expiration date, but need to maintain the rebalancing of the platform's overall position. Therefore, if the longs are in the majority, interest will be paid on the shorts, and vice versa. The funding rate on the product is currently 0.022% and is paid out every 8 hours, so if the shorts are positive, they will receive a portion of the interest yield on the position, while the longs will pay for it. This is a new product in DeFi, and it may attract more traffic for those looking for short-term gains. It could also spawn other money LEGOs to plug into dYdX's perpetual offerings.
4. UMA’s ETHBTC Token
Last week, UMA released its first product: a synthetic token that tracks ETH/BTC prices. Unlike perpetual contracts, this type of contract expires on August 1.
Synthetic tokens like ETHBTC, as UMA's full name (Universal Market Access) suggests, will be retail-oriented products, but they will require large investors on both sides of the transaction to guarantee the product (at least for now). UMA’s synthetic tokens require long and short positions, and investors can enjoy a premium by staking and minting new synthetic tokens, then selling them.
Like dYdX’s perpetual contract funding rate and WBTC-backed Maker loans, UMA can grow by attracting and incentivizing investors with existing positions that can improve capital efficiency in a DeFi-enabled world.
