The ice and undercurrents after the midfield: What should DeFi long-term value investing look at?


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Some people say that the DeFi fever is now gone, but is that really the case?

It’s not DeFi, but FOMO that reduces fever

We see that the total locked-up value of the DeFi sector continues to climb, among which the locked-up volume of Uniswap V2, the leader of the DEX, which has received much attention, has increased by about 50% within 20 days.

What’s interesting is that we saw a significant drop in DEX turnover in late September, but during this period, the number of active DEX users moved forward at a still low level and even declined by a certain amount. According to data provided by Richard Chen of 1confirmation and Mika Honkasalo of The Block, the number of new DeFi addresses added daily exceeds 6,000 consecutively for the first time in history.

So to be precise, the DeFi fever here does not mean that DeFi itself is shrinking, but the previous FOMO market is gradually declining. The power of FOMO has come to an end or temporarily come to an end. The star projects have experienced the first. After the second outbreak, the poor performance made users slowly calm down.

We can’t say that FOMO is not good. It is FOMO that allowed DeFi to complete the early cold start, and let more people understand and use DeFi, and gradually gain a firm foothold. However, we have repeatedly mentioned before that FOMO supported by profit will definitely not last long. This is very similar to the traditional Internet.

What do DeFi long-term value investors look at?

After the end of FOMO, the yield of the DeFi platform continued to decline, and the market’s judgment on junk projects has also greatly improved. Short-sighted speculators will definitely enter a period of silence or choose to exit temporarily, and for those who choose to stay and stick to the long-term value investment For those of you, how should we view the future?

We propose a bold theory here. The early and very early development path of the industry still depends on developers and builders. User needs can only be used as the trigger for starting this field, but not as the most competent contributor to long-term development, just like Apple is the key figure in the era of smartphones and mobile Internet. Therefore, the direction of these developers and builders largely represents the direction of industry development.

Before the holiday, WebX laboratory participated in the POW’ER 2020 DeFi Innovator Conference held by Mars Blockchain in Shenzhen as an important partner. With the perspective of developers and builders, we can see some more real information.

“Capacity expansion” and “performance” are still DeFi’s biggest “ice”

Since the popularity of DeFi has caused problems such as transaction congestion and sky-high fees, public chain expansion has become hot. Whether it is ETH 2.0 and Near’s sharding solution, or a large number of Layer 2 projects are trying to solve this problem, but this This kind of heat lasted only a few months, and the outside world naturally produced “aesthetic fatigue” due to the delay in solving the problem. Driven by FOMO emotions, people’s attention is almost entirely in the “farm” and the endless wealth of codes.

Not talking about it does not mean that the issue is not important. In fact, we found that in the eyes of developers and builders, performance improvement and capacity expansion are still the most urgent and long-term things DeFi will do. Neo founder Da Hongfei believes that most people are trying to make DeFi icing bigger, but it’s not good to eat too much icing. Now DeFi really needs to improve the core, that is, to solve practical performance and operation. Basic just-need issues such as friendliness and high gas fee thresholds, instead of trying to cover up these problems with bigger and sweeter icing (as long as the icing is abundant enough, everyone can tolerate the problem of sky-high handling fees and congestion).

The market always underestimates the impact of long-term value and overestimates the value of short-term impact.

In the “Wang Feng Ten Questions” developed by FTX founder and CEO Sam Bankman Fried (SBF) and Mars Finance and Consensus Lab founder Wang Feng, SBF also affirmed the constraints of performance bottlenecks on the development of DeFi. Xu Bo, the head of Mars Investment Research, even believes that DeFi’s financial ecology can be complete only if the infrastructure is well done. There are nothing more than two sections, one is the security that meets the requirements of sovereignty and the performance that meets the demand for profit.

The embarrassing thing is that everyone knows where the DeFi problem is, but there is no good way to solve it. The waiting time of ETH 2.0 is too long, and the substantial effect of Polkadot and even cross-chain on the expansion remains to be verified. The most frightening thing is that the capacity of Ethereum is now insufficient, and ETH 2.0 is likely to be insufficient. Therefore, it is a serious problem whether it is possible that ETH 2.0 will fall behind as soon as it goes online.

Then some people will focus on Layer 2, which is easier to implement. Ethereum creator Vitalik once said on Twitter: “Project parties and users should migrate to a Rollup-type two-layer network as soon as possible, and this may be the second half of the year. A trend of DeFi.” For example, domestic Conflux and Nervos are doing Layer 2 high-performance public chains based on Ethereum, hoping to attract DeFi users and developers; there is also the recent appearance of Layer 2 DeFi such as EasyFi, September 25 , Synthetix launched the Optimistic test network for the second-tier expansion plan of Ethereum, and users can conduct fast transactions on the second-tier network. These DeFi giants, including Uniswap, Compound, AAVE, Curve, etc., have publicly expressed their Layer 2 intentions.

But this creates a challenge, that is, DeFi’s biggest advantage-composability will be challenged. As 1inch co-founder Sergej Kunz said, Layer 2 can solve the problem of performance and high transaction fees. But it will also lead to the lack of DeFi’s core advantage of high degree of freedom of combination. So will the temporary choice of DeFi+Layer 2 just be a flash in the pan?

Therefore, the real revolutionary innovation of DeFi in the future must appear in the breakthrough of the underlying infrastructure. Before everything has settled, this is still the most valuable space in the DeFi field.

The undercurrent after the bubble burst: What are innovators doing?

In addition to the long-term directions mentioned earlier, innovators in the industry can also explore more valuable directions in this industry in advance. At this conference, the flash circuit performance stage that provides a stage for innovators is a highlight. 14 new projects took up almost a whole day.

Taken together, innovators in these industries mainly focus on improving user experience, lowering operating thresholds, solving financial liquidity, improving DeFi financial infrastructure, and accelerating the expansion of DeFi assets.

In terms of improving the experience and lowering the operating threshold, aggregators are still the most effective direction. For example, Ystar aggregates loan assets, insurance, DEX, oracles and other top digital asset technologies and products, and then pushes them to blockchain market users through structured classification. The current rookie Zenlink on Polkadot, its DEX aggregator can link all DEX DApps on Polkadot. Users can not only complete the exchange easily and quickly, but also enjoy a low slippage trading experience.

Although the liquidity mining boom has passed, we cannot deny its importance. Liquidity is the core of economic activity and is the most important thing for finance, whether it is in CeFi or DeFi. Polkadot DeFi project Bifrost is a cross-chain network that provides liquidity for staking, and it is a product that fits market principles very well. In addition, projects like Wootrade are committed to providing the highest quality and cheapest liquidity for various platforms, allowing retail or large investors to enter and exit digital currencies at the lowest cost. Its essence is to concentrate the liquidity, let different platforms use it, and finally return the profits to the platform that contributes to the liquidity.

One of the most important directions is to solve the problem of weak DeFi assets. Yang Mindao, the founder of dForce, believes that the bottom layer of DeFi building blocks is the stable currency on the asset side. This year, the issuance of stable currency from 2 billion to 20 billion US dollars is the most basic point of the DeFi outbreak. The single asset side of the current DeFi is an important reason restricting its further development. This is also the reason why the flash circuit project QIAN wants to be a stable currency. The value of this direction is that the stable currency transmits the value of mainstream encrypted assets to all DeFi ecosystems. Projects including Aegis, DerivaDEX, and Flamingo hope to introduce more types and larger amounts of assets into the DeFi ecosystem. In addition, we see that asset projects such as DAI and WBTC firmly occupy the top two in the market value of DeFi projects. It is easy to judge the direction that DeFi has the most long-term value.

Finally, the perfection of DeFi itself. Compared with CeFi, DeFi does not do enough in supporting facilities. The popularity of liquid mining cannot cover up this problem. The rise of the decentralized insurance platform Nsure Network is an example that reflects market demand. In addition, decentralized derivatives trading platforms such as DerivaDEX also received extensive attention at the conference. Essentially, these are the foundations of DeFi as a part of the financial industry.

NFT may be hype, but the potential impact and role behind it are not

As a large-scale industry summit, discussions on NFT are indispensable. Many people are puzzled by the sudden appearance of this hot spot. In fact, the driving force behind the popularity of NFT is capital. The market needs continuous FOMO sentiment to stay active. NFT is obviously an outlet.

The SBF in “Wang Feng Ten Questions” stated that people’s attitude towards NFT is a little bit upside-down. NFT may be cool. It actually represents some collectible assets, but currently it has no actual value. They are just pictures. , You can download it at will, and these pictures don’t need NFT at all. At present, NFT has some technical test samples, but there are no practical products. If you want to make it valuable in the future, you need to see more valuable and more useful practical application scenarios. Moreover, the more real situation is that capital and everyone are only interested in it, and at the same time carry out some speculative activities. The future of NFT still needs a product or scenario with more market fit.

It is true that the current market attitude towards NFT may be a kind of hype, but the role behind it may not be. Now the main areas of NFT intervention are games and artworks. However, if you get involved in the fields of tickets, certificates, intellectual property, etc., the imagination of NFT will become extremely huge, because it is essentially an asset online or asset digitization. It is likely to solve the problem of insufficient DeFi on the asset supply side. To a certain extent, it converts real assets into tradable assets on the chain. On the one hand, DeFi has opened a hole for asset inflow. On the other hand, once NFT matures, its explosive ability to transform real things into assets is extremely Scary, because in theory everything is an asset. So you can see that NFT began to be involved in various financial activities such as liquidity mining and trading as an important asset.

It is difficult to persist in making long-term value investment in a field, especially in the field of blockchain and DeFi. The true value of supporting a long-termist is often to believe that the industry can bring about new changes and positive development effects, as DeFi itself should be. The biggest obstacle besides persistence is to find a direction with long-term value in the face of the temptation of interest.