Analyzing the opposition and unity of financial speculation and capital allocation in DeFi
Original source: ThePrimediaDAO
Original Author: Jerry, BeeGee
ThePrimediaDAO's mission is to achieve legends, based on an upward pitch value judgment - we are in an era that will be recorded in the history of encryption, and heroes in the encryption world emerge in large numbers. But looking back at the past at this point in time, we will be disappointed to find that this incident did not happen, and there are no heroes in the encrypted world.
We believe that it is the separation of speculation and belief that restricts the construction of the encrypted world. Specifically, the core part is that there is no connection between the financial speculative attributes of DeFi and the capital needs of Web3 applications, and the development of native Tokens of Web3 applications has stagnated. This has also led to the limited total amount of the encrypted asset market so far and the trend-following nature of many altcoins, BTC, and ETH, which also restricts DeFi players. Regardless of infrastructure factors such as public chains, the mechanism and rules of DeFi itself have evolved to the extreme at this stage, but it is just a game or even a fighting game between the smartest giant whale and the genius who understands algorithms. The concept that the essence of finance is a zero-sum game pervades the DeFi ecosystem.
The essence of finance is to optimize capital allocation and allocate capital to areas/regions with higher efficiency. However, the physical world has many limitations. For example, the global financial market cannot be connected to each other due to licenses. DeFi connects the world through smart contracts, so that the cost of capital acquisition in the global capital range will become equalized. This is a great thing, but it has not played a role in DeFi's empowerment of the Web3/blockchain industry, but it is worth looking forward to-we can even say goodbye to the bull-bear cycle based on the rise and fall of BTC and enter a meaningful cycle. An encrypted economic market supported by fundamentals.
From the perspective of civilization evolution, the era of agricultural civilization is the allocation of resources within a region, the era of industrial and commercial civilization corresponds to the optimal allocation of capital/resources across regions, and the era of information/digital civilization should be matched across time and space More efficient allocation of capital/resources/computing power. This article will take the practice of DeFund as an example to try to analyze the possibility of DeFi allocating capital/resources/computing power across time and space and the value opportunity of empowering Web3 in the process. This is a win-win situation for DeFi and Web3, which will be discussed in detail in the third part.
The full text is divided into three parts: the speculative game of "giant whales and geniuses" breaking the circle; full-chain asset management and global capital allocation; the opposition and unity of speculators and believers, that is, the opposition and unity of DeFi players and Web3 Builder.
1. The speculative game of breaking the circle of "giant whales and geniuses"
This topic is reflective and critical, and the most typical one is the story of Justin Sun, a topic figure in the currency circle. According to the data on the chain, when trying to play AAVE and Compound, Justin Sun’s wallet net assets reached as high as 4.8 billion US dollars, and the total assets exceeded 7 billion US dollars, of which 3 billion US dollars came from loans from Compound and Liquity. According to GFX Labs report, it is suspected that Justin Sun’s address borrowed a large amount of $MKR from AAVE and proposed to create a DAI-TUSD trading pair in the community; after that, he borrowed a large amount of $COMP from Compound to recharge Binance and used these $COMP to initiate a proposal, proposing to add TUSD is used as a collateral asset.
Both of these operations were resisted and ended in failure, but this exposed the possibility of DeFi being played by smart whales. Most of us are soberly aware of the energy of giant whales—how much harm SBF’s tricks have done to the entire industry .
Compared with the destructive power of a smart and well-meaning giant whale, a genius who understands algorithms is even more comfortable in the DeFi world——Mochi Protocol uses its governance token $MOCHI INU to motivate the liquidity of USDM stablecoins in Curve, and utilizes holding A large amount of $MOCHI INU minted a large amount of USDM out of thin air; Mochi Protocol then exchanged USDM for DAI and used DAI to buy a large amount of $CVX (the governance token of Convex Protocol that holds a large number of CRV voting rights) to further compete for liquidity; and continue to use These liquidity exchange USDM for DAI, and then buy $CVX, and the cycle repeats. When the liquidity of USDM reached 100 million US dollars, Mochi Protocol began to cash out, exhausting the liquidity in the pool, making the USDM peg invalid and completing the harvest.
On the whole, DeFi at this stage can be said to be a stock market fighting game between the smartest giant whales and algorithmic geniuses to a large extent.
The Defund V1 version is positioned as a decentralized asset value-added management platform, aiming to solve the problem of the incremental capital market, and expand the current DeFi game that is limited to the inner circle of "giant whales and geniuses" to the entire crypto ecosystem to open up the incremental market .
1. Retail investors
Retail investors can buy funds like buying Tokens. By filtering the DeFund list, they can find their favorite funds, enter the details page, and click "Injection" to purchase. According to different market conditions at that time, you can choose to buy funds with different benchmark assets to maximize returns.
2. Professional investors
Compared with ordinary retail investors, professional investors usually have more knowledge about DeFi, can find excellent funds from many funds, and earn higher returns. At the same time, professional investors can also become fund managers themselves. Provide fund services to other users to earn income.
3. Market Makers and Uniswap V3LP
Sufficient liquidity is necessary for all DeFi applications, and DeFund is no exception. More market makers or Uniswap V3LP can not only obtain Uniswap's income by providing liquidity on the DeFund platform, but also obtain additional income as a GP.
4. Organization
Institutions may need to hedge their portfolio exposures to reduce overall portfolio risk. They can hedge their risks by buying stablecoins or ETH, WBTC or USDC, DAI to look bullish or bearish.
5. DAO organization
Generally, the treasury funds of DAO organizations are usually illiquid, and there is no way to realize value appreciation. Through DeFund, DAO can invest in relatively safe assets, and at the same time, it can also open DAO funds to realize additional income from the DAO treasury.
Defund hopes to enter the market as a stable value-added service provider for blue-chip assets. For blue-chip assets or assets that have undergone strict audits, strictly selected fund managers have strict access and exit mechanisms.
2. Full-chain asset management and global capital allocation
The dream is full, but the reality is very skinny. We must first face up to the possibility of global capital allocation brought to us by DeFi and most lending protocols at this stage are deployed in different versions on different chains/L2 (Ethereum L1, Arbitrum, Optimism, BSC, Solanan, Avalanche, etc.) contradiction. Users' loans on different chains/L 2 are not interoperable, and liquidity is fragmented. Therefore, to achieve global capital allocation, we must first realize full-chain asset management and realize the liquidity of capital on different chains/L2.
At the beginning of the design of DeFund V2, it was considered to support more DEX & DeFi protocols to help the fund enrich sources of income, including not limited to lending, staking, leverage, and even NFT. DeFund releases greater and more possibilities through XXX & DeFund. In short, the V2 version will bring users more ways to play and help users earn more profits.
V1 only supports Ethereum, and V2 will try to support cross-chain assets. There are currently two implementation methods for cross-chain:
1. Multi-chain support, deploy DeFund contracts on multiple chains, maintain different DeFi protocols on different chains, and initially access DeFi contracts that have been deployed on multiple chains.
2. Cross-chain assets. With the continuous improvement of cross-chain bridge facilities like Wormhole and LayerZero, DeFi applications can manage and invest assets across chains. The cross-chain asset function of AAVE V3 is a good attempt.
DeFund will use LayerZero's Omnichain technology to build its full chain interoperability. Specifically which cross-chain method V2 supports requires specific research. According to the development of the ecology and future trends, choose a suitable implementation method to solve the problem of liquidity fragmentation between different chains/L2, so as to build a full chain chain capital market.
On this basis, the main operation form of V1GP is based on the interface interface. V2 will give GP, OP & LP greater fund management possibilities, and will increase fund strategies. GP & OP can set their own trading strategies, allowing funds to Automatically run according to the set strategy, for example: Token Swap
For the existing token of the fund, you can set the buying and selling strategy of the token, for example:
a. Sell a certain amount (proportion) of tokens when the price of the token rises to a certain level
b. When the token price falls to a certain index, buy a certain number of tokens again, or sell a certain number of tokens
For tokens that the fund does not have, you can set the monitoring to buy the token after the token reaches the monitoring price
The existing tokens of the fund are converted into each other when a certain price-to-conversion ratio is reached
LP operation: When the profit (loss) of the pool exceeds a certain indicator, remove part of the liquidity and convert it into a certain token
One-click asset conversion: When the net value of the fund drops rapidly, one-click to quickly convert assets into local currency to avoid losses; when a certain token value rises rapidly, one-click to convert assets into this token to obtain higher returns
At the same time, based on multi-party data analysis, the above three single strategies can be combined into a combined strategy to obtain greater benefits. This will also be one of the goals of V2's continuous iteration. Through better strategies, both GP and LP can obtain higher returns.
More powerful investment statistics function: In V2, firstly, more powerful data statistics function will be added, not only for the disclosure and transparency of fund-related information, but also to help GPs manage funds well and empower GPs. The following functions will be added :
Current investment profit analysis data
Fund warning information
uniswap pool income statistics
3. Opposition and unity between speculators and believers
The opposition and unity between speculators and believers was manifested in the dispute between the currency circle and the chain circle in the last cycle. However, with the unfolding of the narrative between Web 3 and the metaverse, the dispute between coins and chains gradually disappeared, and the consensus on the application of the Token mechanism in Web 3 and the construction of the metaverse world economic system based on the encrypted economic ecology gradually formed; so far, speculators and The opposition and unity of believers has gradually evolved into the opposition and unity of DeFi players and Web 3 Builder.
There are natural contradictions between speculators and believers - speculators still think that finance is a zero-sum game. Their first goal is to make profits, and they don't care about decentralization or not, let alone blockchain/Web 3 Returning user rights to users to realize the iteration of the Internet of Value, not to mention rebuilding economic relations and even social relations in the metaverse with elements such as decentralization, Token mechanism, and DAO organizational governance on top of composable and permissionless codes The Grand Narrative of the Evolution of Digital Civilization. But all of this is the value basis of believers, and it is completely opposite to speculators who regard DeFi as a casino chasing speculative interests.
Therefore, so far, the opposition between the two has greatly constrained the development of the encryption ecosystem, and it has completely failed to play the role of DeFi in full-chain asset management and global capital allocation to empower the development of Web 3.
In the real physical world, there are also contradictions between financial speculation and capital allocation. But it is undeniable that in the physical world, a large number of capitals are wandering in the gray border to find places with higher capital efficiency in the regional capital circulation barriers caused by the policy movement speed of different masters (regime) (government). For example, the financial status and technological status of the United States are mutually reinforcing. More efficient financial capital matching capabilities have created the prosperity of the US technology industry, which together form a strong US economic system, which in turn leads to a developed financial industry. Therefore, in a local area of the physical world, the unity of financial speculation and capital allocation is finally achieved through the effective circulation of capital and the pursuit of higher efficiency.
Information/digital civilization objectively creates prerequisites for transcending the geographical allocation of capital, and guides human beings into the allocation of capital/resources/computing power across time and space. If there are good practice samples, we can expect that in this process, DeFi players and Web 3 Builders will have their own places, iterate the financial, technological, and economic systems dominated by the United States in today's physical world civilization system, and even over-realize Satoshi Nakamoto's Bitcoin. The original intention of the currency white paper peer-to-peer finance to fight against the master (money) power (finance).
According to Watashi, the founder of SafeTreasury, SafeTreasury, a one-stop asset management and collaboration platform, will have built-in DeFund to give full play to the functions of DeFi full-chain asset management and global capital allocation of DeFund, and is committed to providing DAO/ Web 3 applications with Builder users The contribution is the core to complete the construction of DID elements such as the user's assets/equity and reputation/reputation, and provide users with asset management tools on the chain, and promote the division of labor and cooperation of users in DAO/Web 3 applications and the coordinated development of ecological co-construction SafeTreasury.
Trying to empower Web 3 with the functions of DeFi full-chain asset management and global capital allocation is a win-win situation.
For DeFi players, there is a huge restrictive factor that is the current limited amount of encrypted asset market and the tendency of many altcoins, BTC, and ETH to follow the trend. Some of them are trying to convert physical world assets TOKEN and NFT into DeFi Agreement, but this depends to a large extent on the active embrace of the main government (government), otherwise there will be risks of policy supervision.
Relatively speaking, during this round of bulls and bears, the practice of DeFi empowering eb 3 has the opportunity to bring an incremental market to the native assets of the encrypted world, and we can even look forward to the arrival of an encrypted economic market supported by fundamentals in the future. Therefore, responding to the narrative at the beginning, we can see heroes in the encryption world emerging in large numbers!
Of course, giving full play to the functions of DeFi full-chain asset management and global capital allocation to empower Web 3 is not something that can be accomplished overnight with one or two projects, and there are even many difficulties that need to be faced. But after all, this is an exciting practice and exploration. ThePrimediaDAO will continue to pay attention to this track, hoping that more DeFi protocols and Web 3 applications will realize the opposition and unity of speculation and belief, and make full use of DeFi to allocate capital across time and space. The function of /resources/computing power empowers the grand narrative of Web 3 and the Metaverse.
Remarks 1. This article was co-created and co-created by TheprimediaDAO. The main collaborators include TheprimediaDAO initiator Jerry (@ThePrimedia) and TheprimediaDAO Builder, TigerVCDAO Investment Head BeeGee (@BeeGeeETH).
Remark 2. This article belongs to the third station "DeFi Empowering Web 3" of the theme series "Looking for the Next Round of Bull Market Integration". Fusion".
