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What are the advantages and disadvantages of Aave, Compound, Maker, Synthetix and UMA?
Finishing: @Akshay BD
Compilation: Lu Jiangfei’s Chinese version was first published on ChainNews.com
Earlier, Lianwen released the two people’s evaluation and outlook on the head DEX products, see ” Listen to Arthur0x and Su Zhu’s Comments on the Head DEX Project and Future Trends “.
In the second part, let us listen to their discussion on the competitiveness and potential risks of DeFi loan agreements:
There are two main track leaders in the field of DeFi lending agreements: AAVE and Compound. Compound is undoubtedly the first mover, but AAVE is trying to catch up.
- One of the biggest differences of AAVE is that it moves faster. AAVE is like an agile novice, and its biggest competitor, COMP, seems to be a bit old because of its caution;
- AAVE has achieved a good balance between innovation and security. Security is very important, because attacks will hollow out the account balance and damage reputation;
- AAVE v1 was released in January 2020, and the lock-up volume reached US$1.5 billion in seven months. Throughout the history of DeFi, this kind of performance is absolutely amazing. Yearn gave AAVE a lot of boost, the agreement transferred a large amount of liquidity to AAVE, but the speed is still very impressive. There is no doubt that AAVE knows what the community wants and is very happy to provide targeted services to the community;
- Token economy: AAVE tokens are also designed with a certain value capture function, and they are not purely for rent-seeking purposes. AAVE token holders play more of the role of loan “insurance guards”. Therefore, if there is a problem of insufficient collateral, the AAVE pledger is responsible for reducing part of the risk of under-collateralized loans. In some respects, AAVE is similar to traditional bank equity, because bank equity itself actually increases bank debt;
- AAVE has innovated in flash loan and made it used;
- AAVE combines delivery speed with safety and security, which is extremely rare.
- Compound is the first money market product to provide loan services. Very safe, no major accidents have occurred so far;
- In the summer of 2020, Compound announced the launch of liquidity mining, a strategy that made it famous in the decentralized financial market;
- As for the new Compound Chain, it is still unclear what the main content is. It seems that different chains (even the central bank digital currency) may be connected, but I don’t know how they will achieve this goal in practice;
- When Compound first started the governance module, people were full of expectations and enthusiasm for protocol optimization and improvement. However, as the enthusiasm gradually weakened, the progress of governance implementation did not seem to be as fast as imagined. The poor performance of Compound governance is real (perhaps , 1 coin, 1 vote is not the best governance model);
- Su Zhu believes that Compound is very predictable. They found that using the traditional “broker matching” model in the DeFi industry will not be successful and will not have network effects, so they chose the “personal-fund pool” model. Rewarding people who provide liquidity-two-way asynchronous lending is also one of the key reasons for Compound’s success. Of course, Compound’s most logical business model is “income farming”, and from this it derives an ambitious token release and governance plan.
- The idea of income farming and liquidity provision solves the problem of “who will be the user” that has always existed in the DeFi industry in the past, but at the same time it derives other problems, such as: who owns the capital and who is eager to get paid? Do people want to be rewarded for participation, or do they want the greatest return? In fact, Compound has always been subject to the lock-up volume indicator, just like being stuck between rocks, but if you really give up the lock-up volume, the liquidity will be transferred to AAVE, and the result will not be worth the loss.
- For these reasons, AAVE is likely to continue to catch up and eventually surpass Compound.
- When the stablecoin was first launched, Arthur was very keen to find the best investment method for the stablecoin, but at that time he had no way to obtain Tether investment exposure. After that, the cryptocurrency market conducted theoretical debates on issues such as Maker’s inability to expand. Now, the market value of DAI has exceeded 1 billion U.S. dollars, which is enough to show that this stablecoin project is successful. Maker is also the first to prove that it is possible to cold start a decentralized stablecoin agreement;
- As the first DeFi protocol, everyone hopes that Maker will succeed (Dharma, Compound, etc. are supporting Maker) and be strongly recognized by the community;
- However, Maker itself has many problems. Some truly “smart money” realized the potential of DeFi as early as 2019 and invested a lot of money in MKR because they believe that all value will eventually flow to MKR tokens. But as a result, none of this happened, and the good wishes were disillusioned in the MKR community;
- DAI’s next development is full of challenges. Will they use real-world assets as collateral? How will they solve the problem of value capture? Among all token models, token repurchase and token destruction may be the least popular. Placeholder VC has published an article before, in which it talked about token repurchase and destruction will destroy the value of the network. Those who are interested can find and read ;
- Publicly call on the wider DeFi community to put forward more suggestions to solve the economic problems of Maker tokens, and a balance needs to be reached between community economics and protocol growth;
- Most DeFi agreements are providing incentives to users to stimulate more people to use the agreement. This is actually something that Maker should consider, because early community users may be risking some capital;
- Su Zhu believes that if the issuance of tokens is controlled by American VCs, then ultimately the interests of VCs and users will be misaligned;
- The core question DeFi should answer is actually: How to make users richer?
- Comparison between token pledge and token repurchase/burn: once the tokens are pledged, tax issues may be triggered. As a liquidity provider, American VCs are not charities, and it is difficult for them to accept this token economy. Therefore, it is possible that a token economic decision that has nothing to do with the user is finally made.
- “Success” and “failure” are also relative. Users can start using DAI and earn MKR tokens by staking, which is a good thing; but for those who buy and hold tokens, this may not be a good result;
- On the other hand, if Maker can finally get rid of regulatory interference (such as enabling them to do mortgage business), then it may also promote the use of agreements.
- Synthetix is the first asset invested by Arthur and the largest DeFi token besides Chainlink (Chain Wen’s note: at the time of the interview);
- However, Synthetix also has problems, such as: how to cold start synthetic assets from dual native tokens? This seems to be a circular problem;
- What really changed Arthur’s view on Synthetix investment was a blog post about the project, which pointed out that as long as the service can create value, then the mortgage token should be valuable, because it means that people are willing to pay for these services. Therefore, the fees paid to token holders are also valuable. This is somewhat similar to the early purchase of company equity, and the value will eventually show over time.
- In short, Synthetix allows users to pledge SNX tokens to create various synthetic assets and conduct transactions, and transaction fees will be paid to SNX holders who pledge tokens. Synthetix is also the first batch of partners of Optimism, which is a two-tier solution using optimistic rollups;
- Synthetix is currently one of the most active DeFi communities on the market. Although it has gone through a difficult period before, this community is extremely resilient and has a low churn rate.
- Synthetix’s governance method is refreshing, and they found that the 1 coin 1 vote governance model is not ideal (because the giant whale can suppress other token holders). Instead, Synthetix has set up a governance council, and so far, this governance model looks successful.
- Regarding the UMA project, Arthur did not express much opinion, because this project may be one of the DeFi protocols that he does not know the least. At this stage, the market value of UMA does not seem to match the adoption of the agreement;
- The risk of holding UMA tokens is not as large as Synthetix (for example, no debt), but the key question of this project is how to go further than the proof of concept;
- Su Zhu believes that UMA is a DeFi system similar to Augur, but instead of using an oracle, UMA chose a “dispute system”. The disputer is the person who ensures that the contract is properly settled. From the perspective of agreement construction, this model seems to have a certain market appeal, but it is not yet understood how it works in practice. If you don’t want to use UMA arbitrage, the dispute seems easy to resolve. But what the game will be is not clear. For example, what should I do if there is collusion? We have seen too many DeFi protocols being attacked due to problems in the design of the encryption economy model or insufficient market strength. Unless you have enough bounty, these questions are difficult to answer or even unpredictable;
- We may need to use the “turkey effect” as a new way to solve problems. You can refer to Taleb’s psychological experiments. (Chain note: The turkey effect means that someone feeds the turkey every morning, so the turkey will live happily, thinking that this kind of comfortable life will last forever. However, when Thanksgiving Day comes, people But it will eat the turkey. This psychological experiment was proposed by Taleb in the book “Anti-fragility”. Later, he said that he worked in a company and happily waited for the boss to pay his salary every day, when the company went bankrupt. Employees will also be at risk.)
Okay, let’s conclude here. My writing is a bit rough, but the sharing of @Arthur_0x and Su Zhu in the podcast is really valuable. If there is any unclear expression or error, please feel free to correct me.
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