The market value of tokens exceeds 17 billion, and institutional investors continue to increase their stakes. Will the DeFi ecosystem detonate the next bull market?
After the 3.12 black swan incident in the currency circle, the value of Defi ecological pledge tokens fell from the highest point of 1.1 billion US dollars to 50 million US dollars, and the prospect of Defi ecology was bleak.
But just three months later, on June 11, the total value of DeFi ecological pledge assets returned to 1 billion US dollars, and the number of locked BTCs also reached new highs. The total market value of DeFi project tokens also exceeded 2 billion US dollars. The currency price doubled overnight. All this seems to be pointing to a conclusion that Defi ecology is becoming the trend of encryption ecology.
This is not enough, many investment institutions have also begun to increase the investment scale and intensity of the Defi ecology.
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The "robustness" of Defi ecology
In March, under the influence of the new crown epidemic, the U.S. stock market plummeted, and the price of ETH fell by more than 50% in a short period of time. As a result, the market value of collateral in the DeFi market plummeted from more than 1 billion US dollars to around 500 million US dollars.
However, this decline did not last long. Since mid-March, the price of ETH has risen by more than 133%. The value of collateral in the DeFi market has once again exceeded 1 billion US dollars, accounting for 2.43% of the total supply of ETH. More than 2.7 million ETH has been locked as DeFi collateral. In addition, Bitcoin locked in DeFi has also hit a record high, with the number jumping to 4911 on June 3, more than double the 2230 a month ago.
It is enough to illustrate the "robustness" of the Defi ecology. Robustness refers to the tenacity of the system and its ability to recover after a huge blow to the system.
The continuous increase in the number of BTC pledges has also injected new vitality into the Defi ecosystem.
At the same time, the number of investors pouring into the Defi ecosystem is also growing rapidly. Anthony Sassano, co-founder of EthHub, said that on June 6, Ethereum created the 100 millionth unique address, and the number of active users is increasing every day. The number of users participating in 19 of the most popular DeFi protocols is increasing by nearly 1,000 people every day.
Regarding the ultimate impact of the growing DeFi pledged assets, Arthur, a well-known investor in Ethereum, believes that this will eventually turn DeFi into a liquidity black hole.
The surge in the total market value of Defi-related project tokens further illustrates the inclination of capital to the Defi ecosystem.
According to the latest data from DeFiMarketCap, the total market value of DeFi ecological project tokens has exceeded 2.5 billion US dollars. When DeFiMarketCap was first launched just a few weeks ago, the total market value of DeFi tokens just exceeded $1 billion. This shows that the DeFi ecological value is expanding rapidly, and investors are looking for ways that banks and traditional financial institutions cannot control to obtain loans and earn interest.
Even so, the potential of the Defi ecosystem is far from being fully released.
Recently, Kyle Samani (Kyle Samani), co-founder of crypto hedge fund Multicoin Capital, said that as the technical infrastructure supporting decentralized finance continues to improve, the field may gain share from centralized lending and trading venues.
Samani also believes that the growth rate of DeFi platforms is expected to show a "step function growth" in the next 24 months. While acknowledging that current DeFi technology still lags behind CeFi in several key ways, including its slower operation and lower leverage for transactions available, Samani said there are still plenty of opportunities in the space.
Cefi: Centralized finance, the full name of Centralized Finance, is generally a financial product initiated by a tripartite platform such as an exchange, a wallet, or even a bank. It is a financial product that is opposite to Defi thinking.
Whether it is the rapid appreciation of DeFi pledged assets or the rapid accumulation of project token value, it is enough to illustrate the robustness of the DeFi ecosystem.
Both point to the same result, that is, the Defi ecology is becoming a huge attraction to investors. It is profit margins that attract the attention of many investors.
Huge investment opportunities in the Defi ecosystem
Recently, Arthur, a well-known investor in the Ethereum ecosystem, said on Twitter: "The more time I spend in the DeFi space, the more I think DeFi will eventually become a liquidity black hole that will absorb all idle assets. If you don't want to Taking the market risk of holding BTC and ETH, there are many ways to achieve market-neutral returns.”
In addition, in the decentralized lending agreement Aave, the number of pledges of the stablecoin DAI increased by 86% overnight, and the number of pledges climbed from 2.1 million to just over 4 million.
Both point to the same result, that is, the Defi ecology is becoming a huge attraction to investors. It is profit margins that attract the attention of many investors.
Take DAI, the most widely used stablecoin in the DeFi ecosystem, as an example.
In March of this year, MakerDao reduced the DAI stable fee rate to 0.5%. The so-called stable fee rate actually refers to the borrowing interest. If the borrowing interest is lower than the loan interest (Loan) of another platform, there will be an opportunity for arbitrage.
Through the loan interest rates of LoanScan’s decentralized lending agreements, we can see that in the DAI column, the loan interest rate of Compound is 0.96%, the loan interest rate of dydx is 4.07%, and there are loans from other three platforms Aave, Idle, and Fulcrum The interest rates are also higher than MakerDAO's lending rate.
For speculators, it can be described as a great arbitrage space.
Taking the 0.94% interest rate of the Compound lending platform as an example, if investors pledge DAI from the Maker platform, the interest rate they need to pay is 0.5%, while the interest rate they can earn by depositing DAI on the Compound platform is 0.94%, and the net income reaches 0.44%. If it is on the dydx platform, there will be a higher rate of return.
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Reasons why institutions vigorously support Defi projects
The investment amount is tilted toward the Defi ecosystem, which is the most direct manifestation of institutional investors' optimism about this market.
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To briefly cite a few examples, on March 27, the cross-chain DeFi platform Acala announced the completion of a $1.5 million seed round of financing; on April 2, the centralized exchange Uniswap and the decentralized lottery PoolTogether received an investment of $1.1 million; on April 3 , Thesis, the project party of the cross-chain BTC project tBTC, announced the completion of financing of 7.7 million US dollars......
The investment institutions of these projects include Web3.Capital, Coinbase Venture, Fenbushi Capital, Morgan Creek Digital and many other well-known investors in the well-known circle.
The investment institutions of these projects include Web3.Capital, Coinbase Venture, Fenbushi Capital, Morgan Creek Digital and many other well-known investors in the well-known circle.
In response to this phenomenon, the managing director of Digital Renaissance said that in fact, there are more than a dozen full-time developers in these Defi project teams, and the working hours are only three or four hours a day. The reason why the valuation is tens of millions U.S. dollars are determined by two factors.
First, institutions are unwilling to directly go to the secondary market to buy tokens, such as selling Ethereum, because in their opinion, this does not represent their investment level, but they also want to get involved in blockchain investment. Currently, except for the Defi ecosystem , there are no projects to vote for.
Second, institutions have seen the possibility of Defi going out of the circle and the emergence of the real killer application of the blockchain. For example, USDT is now used in many countries as a means of replacing traditional bank accounts for cross-border transfer trade payments, such as Southeast Asia.
Cao Yin also said that whether it is chain games, blockchain technology or other applications, VC cannot see the continuous logic behind them. He dare not invest, but the logic of Defi is very easy to explain.
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The Short Board of Defi Ecology
In March of this year, the "black swan" incident led to the first MKR auction in history to pay off debts, and then two decentralized financial projects, Uniswap and dForce, were stolen.
In the theft incident, the dForce team lost 25 million US dollars. Although these losses were eventually returned by hackers, these negative effects have exposed the shortcomings of the Defi ecosystem.
In response to these problems, Cao Yin said that there are very serious problems in the current Defi model. Although I am optimistic about Defi, I have to say it realistically. The first is to overemphasize decentralization, but we must know that the core of Defi is financial services, and Not decentralized. The insistence on the fundamentalism of decentralization has affected the exit of the Defi industry and the current customer experience of the Defi industry.
In addition, Cao Yin also believes that complete decentralization is actually impossible, and it will inevitably damage the interests of a small number of people. For example, when Ethereum forked ETC in the early days, it was because a small number of people wanted to fork, and then most people didn't want to fork, so there is a serious problem with absolute decentralization.
In the end, Cao Yin believes that in a word, the Defi we see now is not the complete problem of Defi, it is just a prototype of Defi, the skeleton, and the greater imagination of Defi lies in going out of the circle, or in Become the bottom layer of a large number of financial institutions
