A grand feast about DeFi liquidity mining is gradually cooling down, and the DeFi market has finally returned to what people had previously expected: the bubble receded and the demons dispersed.
In the early days of speculation and enthusiasm, no one cared about the old topic of “Is DeFi a self-help concept of Ethereum” anymore. Large households were busy being “farmers” and small businesses were busy taking over. It seemed that everyone had a bright future.
From being questioned one after another to the feast of industry-wide participation to the bubble retreat, DeFi has truly become the focus of the industry’s attention. The stronger the stronger, the dark horses appear frequently, and the surprises continue.
Although accidents and scams continue, DeFi has gradually become an ecology in the development of friction.
At this time, DeFi has entered the midfield, and the industry needs to rethink and reflect when the enthusiasm recedes. The fire of change has been ignited, and more adequate preparations are needed in the second half.
/1/”Ethereum’s self-help concept”
In 2018, Brendan Forster, the founder of cryptocurrency lending platform Dharma, first proposed the concept of DeFi, which refers to the construction of crypto assets, financial smart contracts, and financial smart contracts based on smart contract platforms (such as Ethereum) that include currency issuance, currency transactions, lending and other functions. protocol.
Since its inception, DeFi has also been considered by the industry to be the most likely to land on the track, and countless industry professionals have reported expectations. With frequent media exposure and market hype, DeFi has also entered the industry’s vision as desired.
When the reputation of “the light of public chain” and “future finance” enveloped DeFi, it was ruthlessly labelled with negative labels such as stagnation, collapse, and coolness a year after it was proposed.
Since the second half of 2019, many DeFi projects have suffered successive setbacks. In July, Veil, which started as a predictive market, announced the suspension of operations. In August, the decentralized lending platform Dharma announced the phaseout of existing lending products. In September, V God launched a tweet about ” More than half of the fans voted on whether MakerDAO has the risk of falling anchor. More than half of the fans think “YES”…
At that time, driving high and walking low and quickly falling into the cold became the cruel reality in front of DeFi.
“DeFi is the concept of self-help after the DApp concept has gone cold on Ethereum.” This kind of pessimistic voice is the most circulated in the market.
Indeed, compared to traditional centralized exchanges, ordinary users seem to have no reason or even interest in using DeFi. In addition to the most basic use threshold problem, in the DeFi world, almost every step requires chaining, and chaining means money (gas) and time (miner packing confirmation).
Judging from the current processing performance of Ethereum, it can be said to be expensive and slow. Except for a few speculators, almost no one is willing to take the initiative to use DeFi products.
Even the former leader of MakerDAO users mostly have the attribute of arbitrage. They buy Ethereum by adding leverage to Dai to achieve the purpose of profiting from the rise of Ethereum.
Uniswap’s successful breakthrough in the competition with Bancor was also due to the way that liquidity providers distributed dividends to attract more arbitrageurs.
“You made a DeFi product but didn’t let others make money. It is very inappropriate.” This sentence also directly expresses the true meaning of DeFi.
Arbitrage is not shameful, even in traditional financial markets. Although DeFi at that time paid attention to the degree of discussion that could not be compared with today, it quietly opened a window and became a space for various arbitrageurs to test the waters in the decentralized world.
/2/Compound set off a prairie fire, DeFi gradually became an ecology
Investors did not expect Compound’s liquidity mining reforms in June this year to directly set off the momentum of DeFi development.
On June 20, the first day the Compound token opened the transaction, the agreement won the first place in the total value of all assets locked in DeFi projects.
The method of distributing tokens through liquidity mining is not new at this time. There is a lesson from the past with Fcoin. It was a smash hit but it was a chicken feather. On the first day Compound started liquid mining, some people announced the death of this model in advance, but they never thought that the trend of “liquid mining” would spread. So fast and the impact is so big.
Subsequently, various DeFi projects have launched their own governance tokens and opened a liquidity mining mechanism. In the following two months, the amount of pledge in the Ethereum DeFi ecosystem has exploded and easily exceeded the $10 billion mark.
The market activity comparable to the ICO era has completely ignited this wave. At this time, DeFi has truly become the focus of the entire industry.
At the same time, the DeFi concept project has also gained unprecedented attention. The oracle Chainlink has become the biggest dark horse this year, successfully breaking into the top ten in the market capitalization list; the loan agreement Aave has become the “coin circle Tesla”, and the token Lend has been nearly a year The growth rate exceeded one hundred times; YFI became the biggest surprise in the summer of 2020, and the 10,000-fold increase also led a wave of new trends in industry development…
In addition, projects such as the encrypted insurance project Nexus Mutual, the synthetic asset platform Synthetix and the DAO platform Aragon have emerged, and DeFi is gradually becoming an ecosystem with an unstoppable trend.
At this time, no one mentioned the phrase “DeFi is the self-help concept of Ethereum”. Not only that, DeFi has almost become a self-help movement for all public chains, and many public chains have embraced DeFi in order to gain market attention.
As stories of getting rich one after another were played out again, bubbles and scams gradually grew. It can be said that, to a certain extent, 2020 repeats the story of 2017 again, the two levels are torn apart, and eventually someone will pay for this round of bubbles again and pay a heavy price.
But the difference is that this wave of DeFi has shown us a very imaginative open financial blueprint. The concept of DeFi will inevitably cool down, but it must be the mainstream of the development of the blockchain industry.
After all, finance is the most important application area of blockchain, especially the public chain. The financial field is not used well, and it is even more difficult to make big breakthroughs in other fields!
/3/After experiencing a cooling down, it is urgent to reflect
With the rapid retreat of the market value of many DeFi representative projects and the continuous emergence of off-the-road projects, the DeFi concept is facing cooling at this moment, and many problems have been exposed in this wave of DeFi that require deep reflection.
Even if this wave of DeFi is in full swing on the Ethereum network, it is a big game after all. The gas fee of hundreds of dollars has stopped countless small trips. In desperation, most users choose to go to the secondary market to receive orders. Indirectly blown up the scale of this round of bubbles.
From this point of view, the industry’s infrastructure construction has once again been pushed to a very conspicuous position. The high threshold is accompanied by high handling fees, which is extremely unreasonable in itself. The characteristics of open finance are not only non-discrimination, but also Should be humane and easy to use.
This may give a lot of room for development in cross-chain projects such as Polkadot and projects in the Layer 2 field.
In addition, the industry needs to rethink the value of governance tokens. Whether the governance tokens mined through liquidity mining have value has become an issue that investors need to consider.
In fact, the question of “is there any value in governance tokens?” can be replaced by “is there any value in the governance of the project?”
In this way, the perspective of investors’ observation is focused on the project itself. The value of project governance can be inspired by the hot SushiSwap governance some time ago.
Previously, for SushiSwap farming and liquidity migration, which LP pools should be added, SushiSwap initiated a vote. The top five will join SushiSwap, with an initial reward weight of 0.2 times, and at the same time, it can also get good attention.
Many communities have started the “ticket buying” link, and some communities even promised “one vote, one yuan”, and the value of project governance is displayed in the form of real money at this moment.
The governance of SushiSwap is just a small epitome of the project governance environment. According to non-small numbers, the current DeFi pledge market value is 81.8 billion yuan, accounting for only 3% of the entire network market value.
Subject to the current speculative environment and the scale of the DeFi ecosystem, the governance value is far from being fully reflected, but governance tokens, as an important part of capturing value, deserve long-term attention!
Finally, supervision, as an important part of the absence of open finance, requires special attention. A research paper jointly published by management consulting firms BCG Platinion and Crypto.com also pointed out that the rapid growth of DeFi finance and yield farming may attract more regulatory attention.
DeFi, like the entire industry, lacks supervision, or can only live in a gray area forever!
Even though it is unknown how DeFi will develop in the future, the current signals are showing that DeFi is becoming the best foothold for blockchain applications, but it lacks an opportunity.
Once the related gaps are opened, the DeFi ecosystem will grow rapidly, and everything is worth looking forward to!
