Aggregation, the next development opportunity for DeFi?
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Crypto Valley Live (ID: cryptovalley)", Author: Market Research, Translation: Liam, reprinted by Odaily with authorization.
We’ve been thinking a lot lately about how the DeFi space is developing and how it can follow broader tech industry trends.
If you read Ben Thompson's Stratechery blog, his aggregation theory defines platform companies and
The distinction between "aggregators".
There are some platform companies, such as Shopify or Substack, which provide some API or technology to allow third parties to connect with end users. Substack connects writers and readers, and takes a 10% cut of the revenue. Shopify connects merchants and buyers, and then charges merchants a monthly subscription fee to provide its technology, along with optional value-added services (payments, lines of credit, etc.)."But in the end, it is the author or merchant to acquire users and distribute them."Aggregators are companies like Google or Facebook that mediate relationships between third parties and users. It's an oversimplification to say this, but Facebook and Google have vast amounts of information about their users and use that information to get companies to spend huge amounts of advertising money on them. In many cases, media companies or travel companies don't own the customer relationship, and they have to pay Google and Facebook to publish.
If you were planning a trip to Tokyo, you would probably start your search on Google rather than directly on Expedia. As a result, Expedia spent $6.03 billion in 2019
Sales and Marketing
The cost is mainly spent on Google advertising.
In the world of CeFi cryptocurrencies, Binance is probably the “aggregator” most similar to Facebook or Google. Binance has more than 15,000,000 users and a very large cryptocurrency market, which in turn captures a lot of value (USD) from suppliers (projects wanting to list on the Binance platform).
Project teams (vendors) are willing to pay Binance in several ways: including exchange listing fees, a percentage of their IEO raised funds, and advertising (airdrops and giveaways). The team is willing to pay all these fees to Binance, because it is impossible for them to achieve such extensive publicity and promotion on their own. Listing on Binance also adds legitimacy to the project, as users often assume that Binance does its due diligence before backing a project.
Binance's strong position in the cryptocurrency space, as well as their brand, users, and maturity allow them to bring their products to market later than their competitors, but still gain a very large market share. Binance often lists tokens after other exchanges, was late to the perpetual futures market, and only recently started offering options (albeit one-sided). Regardless, Binance’s products have attracted many users.
In order to apply aggregation theory to DeFi, let's first look at the current DeFi situation:
Protocols (third parties): Compound, dYdX, Maker/DSR, CurveFi, Uniswap, Compound, dYdX"Platforms: Zerion, InstaDapp, Argent"and an emerging class of aggregators: Ray, CurveFi, 1inch.exchange, dex.blue, unspent.io
. No one has really meaningfully aggregated all services. For example, Compound has more users who directly interface with their protocol than any other platform or aggregation service.
Chance
Current aggregators don't quite fit Ben Thompson's definition either, but if you really think about it, you can get a glimpse of how they got there.
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Chance
We think current neutral and UI/UX-focused platforms like Zerion, InstaDapp, Argent, or a whole new company that provides a simplified interface for the DeFi experience have the opportunity to become a full-fledged aggregator in the process."These current aggregators are not that easy to use because unlike tech industry aggregators they have so far only aggregated suppliers and have not been successful in aggregating users."The first platform to become 'THE DeFi platform' will monopolize the entire market. Metamask is a prime example of what happens when a good enough tool emerges before the rest and becomes a recognized brand. Almost all DeFi products have adopted MetaMask first. If your site doesn't have
We propose several paths for how DeFi projects can become aggregators:
Path one:
text"Path one:"text
A platform can transform into a
trust market"Or an app store for DeFi financial opportunities. The platform connects users to any number of financial opportunities and provides some security audits of the protocols they support, which means to users that the platform has done their best to verify that the code is legal and has passed the review."Amazon has a similar approach with third-party merchants, charging merchant partners a per-transaction fee as well as a monthly subscription fee to be able to sell on the Amazon platform.
Indeed, the platform needs to
merchant
Maybe new products (before fully decentralized?) can be charged a fee to get official support (like the previous Binance example). There are plenty of new DeFi apps vying for users' attention. Getting support on the platform with the most users can be of great value marketing-wise to a new team.
Path two:
Another company that has done this is Salesforce. Salesforce acquires users and then provides a way for other companies to integrate their company's services into Salesforce through the AppExchange. Through the AppExchange, Salesforce charges a one-time listing fee (to pay for security clearances) and then takes a percentage of the revenue from subscriptions generated through its platform."A DeFi aggregator with a large user base would be in a perfect position to offer APIs and SDKs for DeFi protocols to integrate with.
Path two:"The above suggestion introduces a question of size. Will DeFi have as many applications as Amazon or Salesforce? This is unlikely. For a platform, the approach to such a problem is to propose a"。
Freemium" model."For retail investors, the platform can draw a percentage of the interest generated through the intermediary smart contract between the user and the actual agreement, or charge a small amount of basis points on the transaction. For users, this is equivalent to"convenience fee"In conjunction with this, the platform can provide a
major
version of the tool (say $500/month), no charge
"Convenience fee" has more functions and more scalability (for example, professional users can integrate new products by themselves through the platform UI, etc.).
This professional tool can be more similar to tools like Prime Brokerage (institutional brokerage business), tailored for institutional clients. The term Prime brokerage is difficult to define, but in the traditional financial field, it generally refers to the one-stop comprehensive financial services provided by banks for hedge funds. The scope of services includes leveraged lending transactions or short selling, transaction execution, cash management, fundraising introductions, consulting services, etc.
In CeFi Crypto, people are very excited about companies building Prime Brokerage (like Tagomi), but most of them don't succeed because:
In traditional markets, without a prime broker, it would be nearly impossible for hedge funds to raise capital from institutional investors, but this is not the case in crypto markets, so overall demand is lower.
Some leading companies in cryptocurrency are actually taking advantage of the early advantages of the exchange infrastructure, so the fund hopes to directly connect with all platforms
Prime brokers are not yet able to provide clients with lending services (for many, this is the most important function).
Even though Prime Broker provides margin in their native UI, funding still requires separate collateral for each exchange (i.e. collateral provided on Huobi is not recognized on OKEx)."The role that DeFi aggregators can play here is to place lending (via Compound or Aave to begin with) next to trading opportunities. In reality, this means market makers borrow on one platform and lend out on another (similar to CeFi's Prime Brokers), but in practice this might look more like a traditional prime broker. A unified trading experience for brokerage."Eventually, one of the platforms will achieve full vertical integration of services, which will lead to a
winner takes all
In most cases, the platform will simplify the process for users and in the process accumulate most of the value for their platform.
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What upsides are there?
The new aggregator has a beautiful user interface, and users don't need to care about those trivial details, which can introduce new users to DeFi, similar to what Coinbase did with cryptocurrencies in late 2017.
When many people come into contact with DeFi for the first time and want to really try it, they will be intimidated by the cumbersome operations. You can imagine an average smart person earning 8% for seeing their dollars on Twitter. So he immediately opened DeFi_Product, only to find that he first needed to go to other places to convert the U.S. dollar into a stable currency, and then he needed to set up a wallet on a different website before he could actually use his own U.S. dollar on DeFi_Product.
There is a lot of room for product improvement in DeFi, and there is value in improving at the platform/aggregator level so that the product can continue to focus on technical improvement and security.
What are the potential risks?
Everything has risks. If you're using Instadapp, and Instadapp uses dex.blue to execute trades on Uniswap, you're probably three layers (and multiple smart contracts) away from the actual trade. More abstract simplifications make it less likely that users will actually understand what they're working with. This shroud of security can be dangerous in a fledgling industry that remains vulnerable to hacking. When developing a protocol that is hack-resistant, simplicity is king.
The further the distance between users and their funds, the greater the potential for a security breach to exist. In addition, when there are more and more things and more and more connections between each other, it will become more and more difficult for aggregators to audit the entire ecosystem. The BZX hack is a great example of what can happen when multiple parts of DeFi get mixed up.
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Image Credit: Deribit Remastered "The Simpsons - Nuclear Scene" (Fox Broadcasting Corporation)
In the 1inch transaction, the funds for DAI to USDT transactions usually flow like this:
User sends DAI to 1inch
1inch sends DAI to curve.fi pool 1.
iearn.financial withdraws USDT to curve.fi pool 2.
Curve.fi pool 2 sends USDT to 1inch.
1inch sends USDT to users
First of all, if someone hacks iearn.financial, he may be able to transfer ERC20 tokens from users who have approved the 1inch smart contract to steal funds, because 1inch has approved curve.fi, and curve. fi approved iearn.financial again. Yet these users may not even know that iearn.financial exists!
Summarize
Second, in Ethereum's current form, gas costs make aggregation very expensive. For example, this 1inch transaction has a fee of nearly $10. It might be worth it for trading thousands of dollars in coins, but not for those trading small amounts. Right now, the gas cost of using a combination of 1inch and CurveFi to exchange DAI/USDT is about 6 times that of exchanging directly from Uniswap ($5.13 vs. $0.855).
