2020 Crypto Financial Market Report: CeFi and DeFi may be combined and release new financial energy

The “2020 Encrypted Financial Market Report” report is divided into four parts: sovereign digital currency, non-sovereign private digital currency, encrypted derivatives market, and the recent very hot DeFi ecosystem.

Sovereign digital currency

Rhythm Research Institute has summarized a simple roadmap for DCEP of the People’s Bank of China. It took 6 years for DCEP to start its research and development to its landing test. In addition to China’s DCEP, the report also studied the sovereign digital currencies of other countries. Among them, the United Kingdom released a report called “Central Bank Digital Currency: Opportunities, Challenges and Designs” in March this year, and established a platform model. The United States is still at the exploratory stage of central bank digital currency.

It can be seen that due to the accumulated currency advantages of the British pound and the U.S. dollar, the governments of the United States and Britain are still holding a wait-and-see attitude towards the electronicization of central bank currencies.

The sovereign tokens of two other countries have also received much attention: Venezuela’s petro currency Petro and the Marshall Islands’ sovereign token SOV.

As the world’s largest oil reserve country, Venezuela has inherent advantages in resources. After World War II, Venezuela’s per capita GDP ranked fourth in the world. However, due to its excessive dependence on oil resources, the country’s economy has plummeted since the 1980s, and its inflation rate has soared.

In 2018, the Venezuelan government put forward the idea of ​​petro currency, which raised nearly 3 billion U.S. dollars from investors in 127 countries by anchoring a barrel of oil with one currency. However, the issuance of petrocoins did not improve the local economic environment. On the contrary, it was suppressed by the US government. In the end, Petro had no choice but to end up rashly.

CBDC has more special value for the Marshall Islands. The Marshall Islands has never issued its own sovereign currency since its founding, and has always used the U.S. dollar as legal tender for circulation. Not being able to use monetary policy to regulate the economy is very fatal to the development of any country, which is equivalent to taking the lifeline of the country’s economy in disguised form in the hands of others. In March 2020, the SOV organizers announced the cooperation with the financial public chain Algorand to create a sovereign token belonging to the Marshall Islands.

No sovereign private digital currency

The Facebook stablecoin project Libra has attracted much attention since its launch, but its development has experienced twists and turns, and it has not been successfully launched until today.

There are many well-known logos in the picture below, such as Andreessen Horowitz, a well-known fund that has invested in Instagram, Coinbase, a well-known trading platform in the crypto field, shopping sites Farfetch and Shopify, and taxi-hailing software Lyft and Uber. These companies were previously honorary members of Libra, and will be responsible for the node operation of the Libra network as originally planned.

Facebook’s original vision was to use its 2.7 billion user base to create a cryptocurrency that can be used by people all over the world. However, the Libra Association, the main body of Libra, is far away in Switzerland, which makes it difficult for the United States to supervise it. So Facebook, the company behind the launch of the Libra project, has become the main subject of American supervision.

On the other hand, among the crypto assets that have been launched in the crypto market, the stable currency USDT under Tether is a very important part of the crypto market. Compared to Bitcoin, which has violent price fluctuations, USDT is more like a peer-to-peer encrypted electronic cash. As people’s demand for USDT becomes stronger, in 2020 alone, USDT has issued 11 billion more USDT, valued at 15 billion U.S. dollars, and its market value is expected to reach 20 billion U.S. dollars within the year.

In order to cater to the needs of traditional investors, the development momentum of compliant stablecoins still cannot be underestimated. Representatives of compliant stablecoins include the stablecoin GUSD launched by Gemini, USDC under Circle, and the stablecoin BUSD recently launched by Paxos and Binance.

Compared to the scale of USDT, the market size of compliant stablecoins is much smaller. Since the regulatory authorities will conduct account audits on the holding accounts of compliant stablecoins every month, and if any problems are found in the relevant trading accounts, they will face asset freezes. This is very troublesome for frequent traders, but for users who use stablecoins for value storage, compliant stablecoins are a better choice. Generally speaking, for investors who have a large amount of funds and want to hold stablecoins for a long time, compliant stablecoins are more secure and stable.

Crypto derivatives market

During the bear market, users seemed to lose interest in a market without severe fluctuations. However, the fiery enthusiasm of derivatives attracted many speculators who had left the market back to the crypto market.

Compared with margin leveraged trading, futures contract trading is simpler and more exciting. There is no need to borrow money to repay the currency, and the leverage can reach up to 125 times. This is a huge temptation for speculative cryptocurrency users.

In March of this year, the trading volume of derivatives on the centralized trading platform climbed to 600 billion U.S. dollars. Although it fell back later, it rushed to 700 billion U.S. dollars in August this year, setting a record high. The fluctuation of data indicates that more and more users are beginning to accept derivatives as investment tools, whether for hedging or speculation.

Previously, the market would more closely associate “contract trading” with BitMEX. The crypto market in 2020 is undergoing a quiet change. Unknowingly, Huobi has surpassed to become a contract trading “big place”. Its monthly contract trading volume reached 180 billion US dollars in May this year, followed by It is OKEx and Binance.

Also in February to March this year, both derivatives and spot trading volumes almost reached their peak in a year. However, as for the transactions between spot and derivatives, it can be clearly found that the volume of derivatives transactions is still far below that of spot. The main reason for this situation is that contract transactions are limited by the requirements of “transaction depth”, and there are restrictions on the number of open currencies; on the other hand, large funds do not have a large demand for leverage to expand income, and at the same time Lack of awareness of using derivatives to hedge against fluctuations in spot prices.

In addition to contracts, options may become the core of the next centralized encrypted financial derivatives. Under the background that the trading volume of spot and futures contracts continues to rise, the demand for option hedging is expected to accelerate. The current options market is still dominated by Deribit. In August 2020, the monthly trading volume of Deribit was US$4 billion. It is expected that the volume of options trading can double within a year.

In order to allow ordinary users to better understand the product, professional investment institutions have launched many novel encrypted financial innovation products using various derivatives. Users do not need to understand the underlying logic of derivatives, but only need to know the product benefits. For example, PayPal launched the PayPal. Usually, when users place an order, their funds are frozen and cannot get any income. The Bottom flexibly utilizes option tools. Even if the user’s pending order fails to be traded, the frozen funds can still enjoy the year. 15% of income.

DeFi ecology

With the boom in liquid mining this year, the total lock-up volume of the DeFi ecosystem has risen all the way, reaching 11 billion U.S. dollars at its peak.

Before the emergence of liquid mining, staking in the PoS consensus has also become one of the popular concepts, but compared to the annualized income of liquid mining, the income of staking is less Inferior a lot. On the other hand, high risks are often hidden under high returns.

For ordinary users, the risk of staking usually comes from the verifier who is entrusted by the staking: if the token holder fails to verify the transaction online on time to produce the block, or if there is any dishonest behavior, then the token holder It will also be punished, and the tokens pledged to the delegated validator will be fined (this punishment is called Slash in the PoS consensus).

For liquid mining, the risk comes more from the project itself. For example, the DeFi project may have contract vulnerabilities that cause hackers to invade, or the project sponsor may do evil, or even the oracle quotation may have problems. Once there is a problem with the DeFi project, users often lose all the funds in the contract.

But in any case, the total market value of the DeFi ecosystem has reached 15 billion US dollars, and many industry insiders predict that the DeFi market value is expected to reach more than 100 billion US dollars within a year. This is still a market with huge potential.

If you pass the data of the three most representative projects in the DeFi ecosystem, MakerDAO, Compound, and Uniswap, you can more intuitively feel the rapid development of DeFi.

MakerDAO’s stable coin DAI, as a decentralized stable coin, plays an extremely critical role in the DeFi ecosystem. The total market value of DAI has now reached 920 million U.S. dollars, surpassing the compliant stablecoins BUSD (730 million) and PAX (300 million), followed by USDC in stable currency market value third (2.8 billion).

Compound, as the ancestor of liquid mining, essentially opened a new chapter in DeFi. Although the total lock-up volume now ranks sixth, and the market value of MakerDAO, the leading lending agreement, is US$1 billion, Compound’s contribution to the development of the DeFi ecosystem is indispensable.

If the most critical attribute of financial assets is liquidity, then the exchange is the most critical hub. Uniswap now sits firmly on the top of the decentralized exchange, with its September trading volume reaching 15.4 billion U.S. dollars, even surpassing the centralized exchange Coinbase for the first time. This is a milestone moment for the DeFi ecosystem.

to sum up

Regarding the future of crypto-finance, Ludong Research Institute believes that in terms of derivatives, although the current major exchanges have covered option trading, the trading depth is seriously insufficient, and the essence is that the market demand is not met. Looking at the traditional capital market, options are already a very mainstream gameplay, and the cryptocurrency market is the same. Options will definitely become mainstream like futures.

Unlike traditional finance, DeFi’s lock-up is a real lock-up, and liquidity has completely disappeared. The outbreak and prosperity of DeFi have indeed attracted a considerable part of the funds in the market. The voice of decentralized platforms seems to be getting stronger and stronger. Although views like “DeFi will replace centralized exchanges and centralized lending platforms” are too radical, it is undeniable that “DeFi’s composability” is the key to the most promising development of the entire track.

In addition, the governance tokens in the current DeFi project can surpass the governance scope of the previous single project, and further extension remains to be seen. The target of governance tokens is traditional equity. In the traditional structure, equity is the representative of management power. However, due to the existence of composability, the effective management method of DeFi projects may be governance tokens.

Due to the huge benefits of liquid mining itself, it is not surprising that centralized platforms have entered the game. However, this does not mean that the funds of the centralized platform have recognized the possible smart contract risks in the DeFi project. PayPal Finance does not believe that the ultra-high annualization of DeFi is sustainable, so it will not pass the risk of smart contracts to users. However, CeFi and DeFi have the possibility of another form of combination, such as the combination of CeFi’s front-end and DeFi’s liquidity, thereby releasing new financial energy.

In the development of encrypted finance, compliance with regulations is the prerequisite for everything, and it is also the development direction of all encrypted enterprises. Looking back at the crypto market in 2020, if one word is used to describe the development of the crypto market this year, the words “user education” may be more appropriate. DCEP allows more people to know what a blockchain is; the trend of interest and the desire for risk hedging allow users to understand contract transactions; liquidity mining and Uniswap’s token “airdrop” allow CeFi investors to learn to use it Wallet on the chain and become a DeFi user.

In 2020, the crypto market, as a still small part of the big financial market, is also undergoing the test brought about by changes in the market and the international environment. Since the birth of Bitcoin, the crypto market that has experienced several “life and death” is still tenacious and prosperous. We look forward to more changes and surprises brought by the crypto financial market in the future.