Within the cryptocurrency industry, change is like a tornado. You do not know when it will come, but it will come suddenly one day, after which cause a violent wave. Staking used to be like this, therefore is DeFi today.
The “3/12 plunge” four months ago once made many people lose confidence on the market, especially DeFi. Because of the short-term and serious jump in the price tag on cryptocurrency, the biggest project within the DeFi industry at the time, MakerDAO, appeared in the debt warehouse (ie insolvency), which initiated the public sale of MKR. The complete process was incredibly chaotic. Not only did some individuals public sale their property at zero cost, but some also called the project to a finish.
More than two months ago, hackers stole 25 million U.S. dollars in dForce, the biggest domestic DeFi project. Although the money were recovered soon after, the participants within the project still experienced a cold sweat. After that occurrence, industry insiders conducted in-depth discussions for the basic safety of DeFi, and their uncertainties and reflections on DeFi are usually far greater than their optimism.
Whether it had been 4 a few months ago or 2 a few months ago, people could not have thought that DeFi would become the biggest hot spot with higher hopes this season.
01 A brief history of DeFi: The annals from MakerDAO to CompoundDeFi is actually very short. It is less than 3 years since the birth of the first DeFi application MakerDAO.
In December 2017, the world’s initial DeFi application MakerDAO was officially launched. This application is aimed at the stable currency marketplace and supports customers to produce Dai, a well balanced currency contrary to the US dollar, by means of unwanted pledge. After just over half a year, by July 2018, the lock-up volume on MakerDAO exceeded $150 million.
Encouraged from the successful claim of MakerDAO, DeFi applications are usually springing right up. In 2018, well-known DeFi apps Compound, dxdy, Uniswap, Dharmar, Augur, WBTC proceeded to go on-line; in 2019, Synthetix, DDEX, dForce, Veil, Kyber, InstaDapp proceeded to go online; in 2020, Loopring, Balancer, and Aave proceeded to go on-line one after another, and in a short period of time Within a time frame, it occupies the top several DeFi application locks. In exactly the same year, Compound went open public on Coinbase and distributed 42% of the full total governance tokens within a “borrow and mine” design, which set off a DeFi lockup frenzy. At the end of June 2020, DeFi’s whole network mortgage amount reached 1.87 billion US dollars.
For an extended period of your time, MakerDAO continues to be the only king within the DeFi industry, and its own locked-up market value has accounted for more than 80% of the entire DeFi ecosystem for a long period. This is not only because it is the earliest DeFi application, but also as the stablecoin is the root financial service, that allows the project to penetrate into some other DeFi tasks. MakerDAO’s dominance was not broken until Compound released a token distribution style of “borrowing is mining” in June 2020, which motivated a surge in online lock-ups having a profit-making impact. However, the current lock-up volume of Compound only accounts for 34% of the entire DeFi network, while the lock-up volume of MakerDAO accounts for 30% of the entire network. Compound has not drawn MakerDAO a great distance. Due to the fact the “made of woll” model is unsustainable, it is not impossible for Compound to become overtaken by MakerDAO in the future.
In the field of cryptocurrency, the explosion of any subject is inseparable from the “pushing hands” of famous capital. DeFi is not any exception. Prior to the rise of DeFi tasks, many well-known capitals have already centered on the advance layout of the field, such as a16z, Polychain, Paradigm, Dragonfly, Coinbase, 1confirmation, etc. No matter in the head DeFi projects such as MakerDAO and Compound, or behind some DeFi tasks that do not seem to be very successful right now, these crypto capital giants have surfaced.
As soon as three years ago, MakerDAO was not given birth to, the DeFi field could be said to be a blank, and the centralized exchange made big money within the digital currency wild market within 2017. At that time, domestic investors focused their expense on another Binance. Hundreds of centralized exchanges popped up at a time, and hundreds of millions of products of money poured into this monitor. However, although the flowers and excitement were like sizzling blossoms in those years, few of these exchanges possess survived and are really earning money.
Unlike Chinese language investors, foreign investors at the time believed that another opportunity within the crypto sector was either in the next generation of open public chains or in decentralized finance. Looking through the expense portfolios of the aforementioned crypto star expense institutions in recent years, you will find that they generally invest in the above two themes.
Why would they make such a view? The author once heard a lecture given by an expense supervisor of a16z in The far east. He feels that blockchain technology itself is really a “lower efficiency” technology, and its own real role would be to offer “trust” that traditional Web giants cannot offer, rather than blindly chasing after TPS. At the current stage, it is not only unrealistic to permit large-scale DApp apps to appear on the public chain, but also does not have fun with the unique part of blockchain technology at all, so he believes that direction is controversial. However the DeFi industry is different. Weighed against some other DApps (like a kind of decentralized game), as a financial services, every byte of DeFi application bears higher “value”; furthermore, additionally, it may resolve some CeFi (centralized Fund) cannot resolve the “trust problem”. With this sense, using blockchain to perform large-scale DApps might be a bit whimsical and a bit wasteful; but it is perfect for DeFi.
Furthermore, some foreign investment managers have expanded the meaning of DeFi. They believe that Bitcoin itself is really a DeFi, a decentralized foreign currency, and this is the nearly all fundamental infrastructure of DeFi. With a decentralized foreign currency, you can create a centralized stable foreign currency, a decentralized lending marketplace, a decentralized swap… The entire DeFi idea is in exactly the same line as the Bitcoin idea, and finally a cryptocurrency will undoubtedly be built The entire financial ecology.
02 Is it a bad point for DeFi to suddenly explode? Since its inception, the marketplace value of DeFi continues to be continuously rising. In The month of january 2018, the full total lock-up volume of DeFi exceeded US$100 million; in June 2019, the full total lock-up volume of DeFi exceeded US$650 million; in Feb 2020, the full total lock-up volume of DeFi exceeded US$1.2 billion. Though it plummeted to US$500 million in March 2020, by the beginning of July, the quantity of DeFi locked up had increased to US$1.85 billion.
Considering the long axis, although DeFi offers exploded recently, its growth is really a long-term process. Also without Compound’s ¨borrowing is mining〃, the overall trend that the quantity of DeFi locked up continues to go up is still really obvious. Weighed against other hype themes within the cryptocurrency industry, DeFi is more like a famous champion after getting a good score, rather than big blow prior to the transcript is paid like some open public chains, the last place is an outbreak of poultry feathers Hu Xiucai.
In addition, from the macro background, Ethereum 2.0 has gradually approached, which will provide new growth momentum towards the DeFi ecosystem. In an job interview with Carbon String Value, Huobi Mining Pool said: “The considerable increase in the efficiency from the Ethereum system is a necessary condition for DeFi to cultivate from a niche application to some mass application. Its high-frequency scene may also provide new gameplay to DeFi. At present In addition to the resource sector, lending sector and liquidity sector, there may be new tracks within the DeFi industry, such as deriving a fresh DeFi sector to offer Ethereum’s personal staking functionality.〃
What must be vigilant is that in neuro-scientific cryptocurrency, once a concept explodes, a bunch of imitators will follow. These imitators likewise have capital and a complete set of commercial chain product packaging touted. The design and code may completely copy the successful tasks, and they will go surfing to harvest leeks simply by modifying their name. DeFi can’t escape this fate. You can find already a lot of similar projects waiting to become listed, plus they want to make a huge profit while the concept is still fresh and sizzling.
For a while, such speculative behavior will hurt DeFi’s reputation. Similar to the idea of Staking in 2019: Staking was originally a good point, but a huge selection of tasks were packaged in the name of Staking and gathered together to harvest leeks, which produced more people doubt PoS tasks. But in the long term, after the short-term hype bubble has handed down, the long-term value of DeFi will remain. A considerable part of the traffic brought in for DeFi tasks will be converted into long-term customers, and the DeFi monitor will continue to flourish.
03Compound is not another Fcoin. Not surprisingly, many people nevertheless have uncertainties about Compound’s opening from the “lending is mining” setting. For the Chinese language currency circle, this model is very much indeed like the aged Fcoin. Relying on the “trading is mining” motivation method, the swap was extremely profitable in 2018, and its own single-day trading volume also surpassed Binance, getting the largest dark horse among the exchanges that year. However, as the huge players began to ship and hit the market, the price tag on Fcoin’s token plummeted, and within a 7 days, the popularity of transactions also dropped sharply. This further led to a decrease in its token dividends and a further decline in costs, which resulted in a terrible death spiral. At the start of 2020, the swap broke out that 13,000 bitcoins could not become redeemed, and creator Zhang Jian went away. After that, Fcoin basically faded out from the industry’s sight.
Some people possess raised questions: Is it feasible for DeFi, which includes exploded with an identical model, to follow the old path of Fcoin? The writer believes that the chance is unlikely.
To begin with, the Compound team is quite wise. Their liquidity mining, that’s, the tokens written by “borrowing is mining”, is essentially a governance token without the economic effect. The amount of money earned from the Compound project is still owned by the company, and Comp holders cannot get any income with the tokens within their hands. The tokens written by Fcoin in the past had been linked with the income of Fcoin itself. This sort of radical incentive technique increases the price of the foreign currency more and more when the price of the foreign currency rises (in order to have more tokens, investors flock towards the transaction, thereby further advertising the rise from the foreign currency price); When it fell, it further added to the decline (investors dumped their tokens and left the market, plus they had been unwilling to business on the system due to deficits, producing a reduction in dividends and a carried on decline in foreign currency costs). The Compound team dismantled the partnership between coins and dividends, hence canceling this horrible positive feedback.
As for why the Compound group separates the governance from the dividend best, different people have different views. From the motivation system, it avoids the harmful style of Fcoin; from the regulatory perspective, Compound’s approach can make its tokens not the same as stocks, which can help it escape the supervision from the SEC; from the perspective of selfishness, although governance rights Separated, but the project income is still owned by the company, that is good for both the capital and the founding team.
Second, the tokens the fact that Compound group distributes to the community every day are usually limited. The full total number of Compound tokens is 10 million, which 4.2 million will undoubtedly be distributed to the community through liquidity mining. Starting in June 2020, for another four years, Compound will spread 2,880 COMP tokens every day. Let’s do some calculations: After the price of Coinbase on the line soared and plummeted, the price tag on COMP tokens generally stabilized below $200. Quite simply, the daily distribution of “liquid mining” to the marketplace does not surpass $600,000. If the price tag on COMP falls, this dividend revenue will also lower.
Readers who know the Bitcoin mining system know that Bitcoin’s daily block rewards are usually limited. The higher the computing power of the entire network, the less coins could be mined by each device. This is actually the same in Compound mining: the more folks who are tempted from the 600,000 dollars to borrow money, the less income each borrower will get. In this way, the amount of “made of woll” and the amount of locked positions will ultimately have an upper threshold. Beyond this threshold, it is not worthwhile to come to “sweep made of woll”, after all, borrowing on Compound must pay corresponding expenses. This is completely different from the initial Fcoin-the original Fcoin has no upper limit on the amount of mining per day, which ultimately brings the “swipe amount” to an extremely crazy point.
At present, we are able to see that the lock-up quantity of Compound is basically stable at 600 million US dollars, that is 5 times more than prior to the on-line liquidity mining. It did not soar all the way like the original Fcoin, and when it reached the peak, it quickly fell. On the other hand, it gives individuals the feeling that it can’t rise even more, but it can’t fall.
Therefore, Compound is obviously because of its money-making effect and the surge within lock-up volume, which includes ignited the entire DeFi circle. But whether it is from the perspective of economic mechanism style or from the current performance of Compound, it is considerably healthier than Fcoin in the past.
Of course, this is not to state that Compound will need to have donˇt worry. Meng Yan, who’s known for creating token economic versions in the circle, believes that Compound shareholder tokens take into account an excessive amount of (about 24% of the full total) and the cost is too reduced (just $13.85). If poorly managed, it may become destroyed Lovemaking smashing power; furthermore, the distribution ratio of Compound founders and group tokens can be too large, data processing for pretty much 26% of the full total, and the cash cost is zero. Though it is unlocked in four years, it’ll be shaken if it’s not managed. The entire community.
04DeFi will go back to long-term value DeFi’s home is not just a short-term hype, but a go back to long-term value.
Since its inception, DeFi players have never been ordinary store investors, but big investors and even institutions. Also for giants like Compound, they had no more than 1,500 customers before releasing the “borrowing is mining” technique, but their lock-up amount reached 100 million US dollars. The problem of some other DeFi projects is similar. There are not many users, but normally, each user hair more assets.
Therefore, DeFi is more like a nifty little concept or toy chased from the upper-class society within the crypto world, and most store investors within the cryptocurrency circle simply cannot reach it. This unexpected detonation has caused some retail traders who have certainly not experienced the flavor of DeFi to attempt to enter DeFi. Let’s not discuss whether these “made of woll parties” could be transformed into real customers, just state that the purpose of education promotion offers actually been achieved.
At the end of June, Huobi hosted a “Cutting-edge Dialogue” on DeFi. For the reason that conversation, dForce creator Yang Mindao said that the explosion of DeFi is truly a process of quantitative change leading to qualitative changes: “From stablecoins and lending to DEX and AMM, the popularity of DeFi continues to be detonated, due to the fact DeFi infrastructure has recently The foundation is laid, and an extremely strong protocol system interconnection continues to be established through composability. Because the cornerstone of DeFi, the stable currency is continuing to grow rapidly since 2018. Upon this basis, the quantity of DeFi locked up quickly increasing.”
How does the matter develop in the future, we have to ask its origins. DeFi, that is “simmered gradually”, will not get rid of its long-term value and direction because of short-term hype. In the future, how DeFi will problem centralized financial providers within the cryptocurrency industry is really a long-term tracing point.
Another point worth long-term monitoring of DeFi is based on its exploration of decentralized governance. Ethereum creator Vitalik made a series of remarks on Twitter this season, and made a highly concise overview of the history, current circumstance and future from the growth of cryptocurrency. He pointed out that from 2008 to 2020, almost all the 12 years of the crypto world have been discovering around finance; nevertheless, in the next 10 years, the growth narrative from the crypto industry changes. In his watch, decentralized neighborhood/governance/DAO, and decentralized anti-censorship information release and conversation are the next very important duties.
The writer will discuss this topic separately in the next article. This is a point to submit: I think DeFi may be the best testing surface for DAO (decentralized self-organization). At present, the normal issue of DAO is the lack of moments, having less reliable and continuous income, also it could even be said that “power generation by like. However, individuals must eat to call home, and organizations will need to have cashflow to survive in the long term and continue to expand. If the current DeFi is really a toy at the upper-class people within the encryption industry, then DAO is the utopia from the upper-class intellectuals. To truly promote DAO, it is necessary to find a matching scenario and operate it through the business enterprise layer.
Now, DeFi offers business scenarios. Whether it’s giving stablecoins or lending places, it usually truly meets the needs of this group of people or another group of people. DeFi also has cash income, such as commissions for tasks, or service fees charged to customers. In addition, the idea of decentralized finance naturally fits the idea of decentralized governance. This time, Compound distributes governance tokens through the method of “borrowing and mining”, which is a big phase for another DeFi project to explore decentralized governance.
Compound’s exploration may not be successful, but for DAO, its importance is extraordinary. If we dare to create bigger ideas, probably, an economic system that replaces the corporate system is already within the bud.
05CeFi’s response and layout correspond to the fiery DeFi, that is how “CeFi” responds.
In the field of cryptocurrency, CeFi mainly refers to centralized exchanges. Of course, centralized lending companies and centralized stablecoins are also experiencing DeFi, but non-e of them sense as strong as a centralized swap. This is because the business enterprise of centralized lending companies is not purely encrypted property. Miners not only mortgage Bitcoin to lend stablecoins to cover electricity bills, but also mortgage mines and mining devices to borrow money. Once it consists of off-chain business, DeFi is hard to implement. For centralized stablecoins, USDT offers firmly secured its position as a bigwig, and it is hard to become shaken by decentralized stablecoins for the moment.
At present, the depth and liquidity of decentralized exchanges have surpassed those of second and third-tier exchanges. In 2019, the marketplace talk about of decentralized exchanges was just 0.2% of this of centralized exchanges; by 2020, this number has increased to 1%. In this regard, it is impossible for centralized exchanges to become unaware. So, how do they respond?
Overseas exchanges represented by Coinbase have already participated within the layout of DeFi in advance, and can also be said to be the direct driving force from the DeFi wave. Actually, there are not a several well-known centralized exchanges abroad, such as BitMex, Kraken, Gemini and so on. Why can only Coinbase stick out within the DeFi layout?
To begin with, compared with some other exchanges, Coinbase has a profound partnership with crypto expense giants. The top investment institution within the circle, a16z, committed to Coinbase as early as 2013 and followed up twice; the founder of another well-known expense institution, Polychain, was originally Coinbase’s No. 3 employee. Throughout background, Coinbase’s portfolio offers numerous overlaps with a16z and Polychain’s profile. However, the two major investment establishments have the earliest judgments on DeFi and the heaviest chips. In this way, it is not unusual for Coinbase, which includes in-depth exchanges with these two major expense institutions, to take the lead in deploying DeFi among all centralized exchanges.
Second, Coinbase itself is an earlier participant and beneficiary of cryptocurrency. Their founding group has a more cutting-edge cognition and view on the form and services of future financial business. In April 2018, Coinbase introduced the establishment of Coinbase Endeavors, an expense arm, with the motto of “investing in companies which are building an open economic climate.” DeFi matches the theme, correct in the middle.
Coinbase’s layout of DeFi is divided into 2 aspects. On the one hand, it is to invest in promising DeFi tasks as investors; on the other hand, it is to release high-quality DeFi project tokens. –This is fairly the feeling of being an athlete and a referee. As soon as 2018, Coinbase committed to Paradex, a decentralized swap project. Subsequently, it committed to DeFi projects Compound, Dharma, UMA, InstaDapp, etc. These tasks have achieved good performance. Furthermore, Coinbase can be probably one of the most helpful centralized exchanges for DeFi concept tokens. Up to now, a total of 26 tasks have been released on Coinbase Professional, among which 7 tasks, MKR, ZRX (behind the decentralized transaction protocol 0x), DAI, LOOM, KNC (Kyber), COMP, REP (Augur), are DeFi concept. For Coinbase, that is prudent in listing, this shows the level of its DeFi layout.
We can notice from Coinbase that not only does DeFi fail to defeat CeFi; on the other hand, some CeFi can be the pioneer of DeFi and even the promoter of the idea. Their benefits from DeFi are usually a minimum of the advantages of sticking to CeFi.
Due to differences in investment logic and pondering, domestic investors were not keen on investing in DeFi at the start, which resulted in almost all foreigners within the DeFi industry. In the set of the top 30 DeFi locked positions, few Chinese language projects are included in this. However, this situation is currently modifying.
The Chinese language exchange represented by Huobi is accelerating its deployment on DeFi. In Feb 2020, Huobi released the Bitcoin token HBTC for the Ethereum blockchain. HBTC totally abides from the 1:1 reserve assurance, that is, for each and every HBTC issued, its resource depository address could have 1BTC resource protection, and customers can use HBTC and BTC for 1:1 swap at any time.
Bitcoin tokens based on the Ethereum blockchain are a fundamental track within the DeFi industry. The two chains of Ethereum and Bitcoin can’t be directly connected, and therefore assets can’t be directly transferred. Prior to the intro of Bitcoin tokens, the Ethereum-based DeFi ecosystem mainly used ETH as guarantee; however, compared with Bitcoin, the marketplace value of Ethereum is still too small. If only this asset can be used as the root resource of DeFi , DeFi’s marketplace space is normally limited. Therefore, the intro of Bitcoin tokens for the Ethereum blockchain has turned into a focus of interest.
The first to see this business opportunity were early entrepreneurs within the DeFi field. In Oct 2018, Bitgo, Kyber and Ren officially announced the development of a fresh ERC20 token, WBTC. At the start of 2019, this product was officially launched, also it was soon added to the ranks of MakerDAO backed collateral. Up to now, WBTC’s locked placement offers exceeded 80 million US dollars.
The HBTC released by Huobi directly stimulated the recent rapid growth of WBTC. Furthermore, imtoken, the biggest domestic Ethereum budget, also launched its bitcoin token imBTC. Both HBTC and imBTC are usually accepted as guarantee by dForce. At the start of Feb 2020, both HBTC and imBTC’s lock-up volume exceeded 500 BTC, and they are both carrying on to flourish.
In addition to directly launching the underlying products required from the DeFi ecosystem, Huobi can be taking part in the construction from the DeFi ecosystem in all respects. Within the mining business, Huobi Mining Pool is carrying on to mine top quality new DeFi tasks and start co-operation. For instance, on July 8 it opened up the lock-up mining of the brand new oracle project Nest. With regards to enhancing the ecological infrastructure, Huobi Wallet recently announced that it will provide Huobi Global transaction information to Chainlink, the world’s largest oracle project, and provide price feed services for just about any DeFi apps connected to Chainlink. It is well worth mentioning that is the world’s initial large-scale exchange to perform Chainlink nodes.
Furthermore, like Coinbase, Huobi is actively taking part in DeFi investment. In April 2020, dForce, the biggest DeFi project in China, introduced the conclusion of a US$1.5 million strategic financing. Huobi Capital participated in this investment. At the peak of dForce, its lock-up volume once ranked 4th within the decentralized lending market, that is also the best result of domestic DeFi projects so far. Even though hacking incident by the end of April dealt a heavy blow to dForce, luckily, the taken crypto assets well worth $25 million have already been retrieved. The dForce project was also introduced to become restarted.
Even though dForce incident was not complete, it had been the beginning of a brave attempt to discover the domestic DeFi project. Huobi’s expense in dForce can be an important occasion for the domestic centralized swap to phase into DeFi. If DeFi is really a long-term hot spot, after that domestic exchanges should not be absent out of this monitor and must increase the layout.
06Summary: Some conversations on the restrictions of DeFi In this article, we have produced an overall overview of the DeFi industry and recent hot spots, and also produced a more optimistic outlook on the continuing future of DeFi. But in the overview, I want to discuss the restrictions of DeFi.
The biggest restriction of DeFi is the current restriction of cryptocurrency: it is separated from the entity and speculation prevails.
“3.12” made many people within the circle recognize that, set alongside the vision of digital gold and global computers, the current state of cryptocurrency is more like a super on line casino, and layers of beautiful visions are gorgeous on top of the hype. veil. Currently, cryptocurrencies are divided from the entity, & most of them absence usage scenarios and therefore absence the anchor of value. Some people state that valuing cryptocurrencies is an art, not a science, which really is a helpful statement. Actually, valuing cryptocurrencies is really a speculative metaphysics, that is full of capital hype and huge capital manipulation. If ordinary traders don’t pay attention, they will run into a bloodshed.
The biggest usage of DeFi, which was born on top of cryptocurrency, would be to provide new gameplay and new tools for speculators in the market. Its roof is normally constrained from the root cryptocurrency. So long as the cryptocurrency is not connected to the entity for any day time, DeFi cannot expand the narrative and therefore cannot expand the valuation. No matter how new the gameplay is, it is just a book tool inside the cryptocurrency casino.
Now, in order to hype DeFi projects, quite a few project parties also contact traditional financial circles such as stocks and connection marketplaces CeFi, and their DeFi valuations should directly correspond to the valuation of the entire traditional financial circle like this. That is pure non-sense, and investors ought to be wary of this and steer clear of being deceived.
Furthermore biggest limitation, DeFi also faces several natural problems:
To begin with, after every financial business becomes much larger, it will involve conformity and anti-money laundering problems. With the increasing volume of DeFi, should we do anti-money laundering? How exactly to do anti-money laundering? This problem needs to cause practitioners to believe in advance.
Second, DeFi is facing increasingly serious protection issues. With the improving market value of DeFi, it has attracted the eye of many hackers. Hunters hiding in the dark stared at high-value DeFi tasks day and night, trying to find hunting opportunities from their mistakes, and chance and stole the important assets above.
Generally speaking, the DeFi field is developing within a “promising” direction. As one of the several new tracks within the cryptocurrency industry that has confirmed its logic, why don’t we bless it.
Within the cryptocurrency industry, change is like a tornado. You do not know when it will come, but it will come suddenly one day, after which cause a violent wave. Staking used to be like this, therefore is DeFi today.