Editors Note: This article comes fromView on the chain (ID: liansg01), Author: Hao Tian, reproduced by Odaily with authorization.
Editors Note: This article comes from
View on the chain (ID: liansg01)
View on the chain (ID: liansg01)
, Author: Hao Tian, reproduced by Odaily with authorization.
noise，noise，noise。
Friends who have read my past articles know that I will think about the development trend of the industry from time to time, especially when the secondary market is surrounded by a noisy mood.
In the past few months, the DeFi market has been on a roller coaster-like dream.
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First, the skyrocketing growth without looking back, relying on the innovative model of liquidity mining, stimulated the nerves of every new and old leek, and everyone in the circle marveled at the industrys birth of a new bull market;
After that, it plummeted for many consecutive days, and many people were trapped in the high-point leeks, and they became contemporary thinkers and critics, and began to think about the DeFi bubble, criticizing that the DeFi boom is just a fund game of drumming and spreading flowers;
In fact, if you only focus on the short-term rise and fall of the currency price, then how exciting the surprise of the rise is, and how painful the pain of the fall is. Investors should really see clearly what is the fundamental factor driving this wave of DeFi boom? What is the positive significance of this wave of DeFi boom to the industry?
In the following pages, we will discuss each issue one by one.
In my opinion, the root cause of this wave of DeFi boom is that the liquidity mining model innovatively empowers the wealth effect of the encrypted asset secondary market to the DeFi primary innovation market.
In the three years from 2017 to 2020, many DeFi projects including MakerDAO, Compound, Aave, etc. have started to explore the application of blockchain technology in the financial industry. Their vision is to build a decentralized bank in the encrypted world, where users can mortgage encrypted assets to obtain wealth management interest, and can also pay interest to borrow encrypted assets.
However, after nearly three years of development, the DeFi market has only accumulated $1 billion in locked-up volume (TVL) of encrypted assets. The reason is that this kind of borrowing demand is limited to the hoarding needs of miners, and the usage scenarios are very limited. , the audience has always been small, and the entire DeFi market is therefore tepid.
In order to attract more users to borrow, on June 17 this year, the top lending platform Compound issued the governance token COMP, as long as users participate in lending, they can get COMP token incentives to attract new users.
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Surprisingly, this currency, which was originally issued out of thin air similar to points, once skyrocketed by 20 times. Not only did Compound’s market value surpass MakerDAO to become the new DeFi brother, but also many retail investors tasted the benefits of DeFi Nuggets. sweetness.
Soon, the secondary market, which is extremely lacking in hype, discovered the gold-absorbing effect of DeFi. As a result, more and more high-quality DeFi projects began to plan to issue coins, more and more exchanges began to grab DeFi coins, and more and more users began to ambush to participate in DeFi investments. In this way, the DeFi liquidity mining boom began to take shape.
Compared with the story-telling investment and financing model in Nabo Isios white paper in 2017, the DeFi lending platform has visible asset lock-ups, open-source contract codes, and a healthy operating model. In the eyes of many people, investing in DeFi platform tokens It is equivalent to investing in the stocks of giant alligators of the future blockchain financial platform, which is much more reliable than the project launched by Isio. Some people even challenged that the DeFi tokens whose market value is still in the 30s and 40s will definitely replace Litecoin (LTC), Ripple (XRP), Bitcoin Cash (BCH) and so on one day in the future.
After all, if the market value is also obtained by telling stories, we and other leeks would rather believe that we can see and touch it now.
After taking advantage of the wealth effect of the secondary market, we were surprised to find that the innovative singularity of the DeFi primary market has also been opened. With the help of hot money, DeFi products have also begun to evolve step by step.
First, Andre, a talented engineer from a Wall Street financial institution, innovatively created the DeFi aggregator platform yearn.finance. Andre found that the root cause of the lack of users on platforms such as Compound is that the interest rate market returns are too low, and everyone is afraid of a large number of liquidations due to the plunge of the mainstream mortgage asset ETH. What about the interest rate situation of DeFi products, and the financial management platform that automatically adjusts positions?
On the one hand, this micro-innovation solves the problem that big funds are afraid to enter the market due to the fear of poor stability in the DeFi market. On the other hand, it does help the underlying lending platforms such as Compound and Aave to aggregate a large amount of traffic and funds. Moreover, the price of yearn.finance governance token YFI (big uncle) also surpassed Bitcoin in a short period of time, allowing everyone to see the power of DeFi innovation.
It should be said that the emergence of yearn.finance is definitely a milestone turning point in the history of DeFi. Since then, the DeFi family of products has evolved wildly.
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Appeared, AMPL, a currency experiment that elastically supplies the total amount of tokens according to market value, also appeared YAM, a wealth management aggregation platform integrating AMPL+YFI, and then Sushiswap, a vampire platform that borrowed other people’s wives to give birth to themselves, appeared. Of course, This has also created Uniswap, the number one DEX in the universe that makes centralized exchanges such as Coinbase and Binance unable to sleep.
Whats more, this kind of epic chance to collect wool was quickly copied to TRON and EOS ecology. Outside of the giant whale battlefield where Ethereum was mined, they opened up an amusement park for dicks. All kinds of vegetables, fruits, and rare treasures are all online.
If it is said that the emergence of YFI ushered in a new era of DeFi innovation, then YAM+Sushiswap, including Uniswap’s forced currency issuance, all exacerbated the bubble in the DeFi market without exception.
The history of the evolution of this wave of DeFi boom is essentially the innovation of financial models to allow the blockchain financial scene to have a wider flow and market foundation. Putting aside the hype, bubbles and other anxiety caused by the excessive expansion of sentiment in the secondary market, from an objective point of view, what are the far-reaching and positive impacts of this wave of DeFi boom?
DeFi maintains the stability of the entire encrypted asset market
Some people say that DeFi currencies can fluctuate three to five times a day, how can they be stable? We have to be clear that the circulation of many DeFi currencies is small, and small capital transactions can cause large fluctuations. It is of little significance to see the rise and fall of DeFi currencies in the short term. Whether the market is stable or not depends on the performance of mainstream cryptocurrencies. We have noticed that since the black swan incident broke out on March 12 this year, mainstream currencies such as Dabing and Ethereum have felt like they are sitting firmly on Zijinlian. Recall that in the half a year before 312, the entire encrypted asset market was constantly going up and down, and everyone was in a panic. After this wave of DeFi boom, the mainstream market is obviously much more stable.
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the reason is simple:
1) A large amount of funds for malicious control and speculation have been transferred to the DeFi market. Compared with the mainstream market, DeFi with a smaller circulation is easier to control at a low cost;
2) Liquidity mining in the DeFi market has locked up most of the funds. This time Uniswap did liquidity mining, and WBTC lockups increased by more than 100,000. The popularity of DeFi has allowed mainstream encrypted assets such as Ethereum and Bitcoin to circulate The disk is more stable;
3) The biggest crisis in the DeFi market is the sharp fluctuations in the prices of its mortgage assets. This will be similar to the financial subprime mortgage crisis, causing a large number of platforms to face a liquidation crisis. Coupled with the overlapping of DeFi assets, it is easy to induce a crash.
DeFi leads the blockchain financial market to usher in the Cambrian explosion
Many people think that this DeFi liquidity mining is the same as the EOS gambling game boom at the end of 2018, and it is inevitable to escape the fate of a flash in the pan. In my opinion, DeFi liquidity mining is just the beginning of blockchain financial innovation, and more innovative and dynamic financial gameplay will surface.
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why would you say so?
1) DeFi’s composable Lego building block model can accommodate innovation at a lower cost and in a more diverse way. Now the popular model is aggregation + financial management. It is foreseeable that aggregation + insurance, aggregation + games, etc. etc. will follow one after another, creating more gameplay and possibilities for the market;
2) This wave of upsurge has stripped away the elements of hype, and many underlying innovations are still remarkable: AMPL’s automatic inflation rebase mechanism is an innovation to the Bitcoin currency experiment; An innovation; the YFI aggregators no private placement and no pre-mining mechanism is an innovation of the investment and financing model, etc.;
3) Elite talents and institutional funds in traditional financial circles are running into the market. No matter how fancy the model innovation is, our greatest confidence in an industry depends on how much capital and talent it attracts. Since Uncle YFI became popular, these DeFi developers who come to the Ethereum public chain have rich qualifications, and more and more traditional financial talents have joined this industry. Moreover, as the lending market stabilizes after the stablecoinization, large institutional funds will also enter the encrypted world.
DeFi has opened a new era of stablecoin mining and wealth management
If we put tradition into computer computing power, if POW is defined as hardware mining 1.0 era, then pledging cryptocurrency for wealth management mining should belong to software mining 2.0 era.
Mining in the 1.0 era should be based on power consumption for the normal operation of the encryption ecological infrastructure. Mining in the 2.0 era no longer consumes energy. While building the system to operate, it is necessary to challenge how to popularize the encryption ecology to more people. Industry, applied to more scenarios, attracting more people to participate.
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Why is this wave of DeFi okay?
1) Yearn.finance acts as a stablecoin aggregator to attract more stable institutional assets into the encryption market, adding a stable background to the DeFi market and highlighting the financial characteristics of the DeFi market. In the future, the DeFi market will gradually evolve into a stablecoin market, and the market value of stablecoins may one day exceed the total asset value of the crypto market.
2) After the speculative nature is stripped away, the stable financial management needs of the market will be truly developed, and the formation of the stable currency financial management market will directly lead DeFi out of the circle. At that time, not only some traditional ETF foundations have found a suitable way to enter, but even the DCEP promoted by the central bank and the digital currencies dominated by various countries may also find a way to integrate with the encrypted asset market. At that time, there will be appropriate solutions for the compliance and supervision of the encryption market. This is the real future of the encryption market that we can see.
3) The stablecoin wealth management market can reduce the leverage ratio of the current mortgage lending, and apply the credit mechanism to the field of encrypted assets, so that it is possible to bring fixed assets such as off-chain real estate into the DeFi industry, and expand more possibilities for the blockchain financial field. imagination.
As you can see, the DeFi market is still evolving step by step.
It is only a matter of time in my opinion whether to further demonize or gradually become rational. Time will precipitate some valuable products, will gift more meaningful innovations, and of course will also eliminate those noisy troublemakers. So, for friends who are not familiar with the DeFi industry, how to correctly invest in DeFi value currencies?
My suggestion is to look for the underlying value currency and stay away from air coins.
As far as liquidity mining is concerned, the underlying value currency is a series of value currencies supported by the DeFi aggregator that are supported by the underlying lending demand scenario. For example, ETH (the bottom layer of the public chain, DeFi products must use ETH as the gas transaction fee), SNX (synthetic asset solution, which realizes the bridging of various assets), LEND (there is a healthy demand for deposits and loans, and the scale of funds grows rapidly), LINK (leading decentralized oracle project), NXM (leading decentralized insurance project), etc. With the emergence of more and more DeFi innovative products, the value of these projects in the DeFi ecosystem is becoming more and more prominent. Optimistically speaking, in the next one or two years, the market value of these projects is likely to break into the top 20 in the cryptocurrency market. Space can be expected.
