If there is one word to summarize the encryption innovation in 2020, it is “DeFi”. DeFi is a compound term for decentralized finance, covering hundreds of crypto projects with non-custodial financial projects as the background.
In 2020, DeFi has a lot to interpret. In this industry full of nascent agreements, initial investors invested a total of US$1 billion in capital, and the total value has doubled several times at current prices. As of December 2020, there are about more than 20 billion US dollars of assets locked in the DeFi agreement; however, if you consider the market value of DeFi and the current service of traditional financial institutions, the value of the DeFi industry far exceeds this number.
Today’s DeFi has become a “star” industry. Andre Cronje, Hayden Adam, Rune Christensen, Robert Leshner, Stani Kulechov, Sergey Nazarov, Kain Warwick, and Stani Kulechov are so famous that they are the eight most important people in DeFi this year. But more DeFi projects are running in a community or team way.
In this article, we will compile the stories that happened on DeFi in 2020 into a line, so that you can understand more clearly what happened and how various factors are intertwined to produce today’s situation. After that, we will also list the top ten “black words” of DeFi-these black words show the optimistic and interesting side of the thriving DeFi, and are also a necessary step for beginners to DeFi.
How does the first part of DeFi become the focus step by step?
From January to March, the rise of DeFi
On January 1, decentralized finance has not really taken shape. According to DeFiPulse data, there will be approximately $700 million locked in various DeFi smart contracts at the beginning of 2020, but the industry is still in its fledgling stage. However, compared with the previous year, there was a significant increase. On January 1, 2019, only about $278 million was locked in DeFi smart contracts.
DeFi investment is an adventure. Framework Ventures is a venture capital company dedicated to investing in DeFi. Co-founder Michael Anderson (Michael Anderson) predicted that by the end of this year, DeFi’s assets will exceed 3 billion US dollars, which surprised us. Anderson said: “2020 is the year that DeFi will truly scale.”
The fact is true! DeFi’s 2020 vision has a bad start. In February, a series of manipulation of flash loan oracle machines stole millions of dollars from bZx’s Fulcrum agreement. This was the first major incident in dozens of similar attacks.
By March of this year, the situation seemed to be getting better again, when the price of Bitcoin rose to about $10,000. The DeFi lending agreement Aave locks up $35 million (as of this writing, it holds $1.37 billion).
March-May: New Coronavirus “Black Swan”
In mid-March, as the new crown virus swept the world, Bitcoin fell to a low of around $4,000. Affected by this, the plunge caused a large outflow of ETH that supports the decentralized stable currency DAI, and the price of the stable currency, which should be worth $1, rose to $1.1. In order to save DAI, MakerDAO proposed to use the centralized stable currency USDC to mortgage DAI.
As governments repaired the economic collapse caused by the epidemic and Bitcoin recovered, DeFi was back on track. The first half of 2020 was shrouded by Bitcoin halving, and Bitcoin miners’ block rewards were halved. Andre Cronje, the founder of yearn.financial, threatened to leave the circle. Then, uh, he didn’t.
June-October: Carnival
In June, DeFi became crazy. At the end of June, Compound issued COMP to every user, the so-called “governance token”. COMP is for use in Compound governance agreement; it is a way to put money on your lips and have a positive say in the future development direction of the agreement. But in practice, it has become a form of speculation on the future value of Compound. People use Compound for the purpose of “farming income.” This game called “farming” is underway.
Other agreements, such as Aave and Yearn.finance, have also launched their own governance tokens. Yearn.finance’s YFI soared to a high of around $40,000, despite the upper limit of its token supply being only 30,000. “Farming income” has accelerated the development of DeFi, and the amount of locked positions in the DeFi agreement will increase by about $1 billion every week, sometimes faster.
DeFi’s carnival has given birth to the development of the entire subculture. More than a dozen high-yield projects have sprung up every day, and some farming yields have even exceeded 1,000%. Obviously, many projects are scams and investors have suffered heavy losses as a result, while other projects that jumped on the hype train are full of loopholes.
The DeFi boom has caused a surge in trading volume on decentralized exchanges. Among them, Uniswap’s processing transaction volume beat the largest centralized exchange Coinbase Pro at some point.
In addition, DeFi has also spawned the development of subcultural humor. Suddenly, a large number of so-called “meme” coins were born, all around specific food themes, such as YAM, Pickle Finance, MEME (the icon is a pineapple), SushiSwap, BurgerSwap, Kimchi, Cream Finance, etc.
SushiSwap is a derivative product of Uniswap, which is integrated into the farming revenue mechanism. When the founder chef Nomi cashed out a $14 million Ethereum development fund in September, it attracted the attention of the DeFi community. The community was very angry. Nomi returned the money out of guilt and handed the control of SushiSwap to FTX CEO Sam Bankman-Fried. Bankman-Fried later returned leadership to the community.
The DeFi industry continues to grow and develop, but everyone knows that it cannot last for long. In order to persuade investors to keep their money in the DeFi protocol, developers continue to mint more tokens. But at some point, the market will become so inflated, farmers’ yields will fall, and any agreement fueled by speculation will collapse.
The DeFi industry looks set to continue to grow. The only thing to worry about is the high GAS fee. DeFi has surpassed Ethereum, and it is not fast enough to handle all traffic. Transaction fees have risen to an excessively high level, and in some cases, the fees for a single DeFi transaction have reached a high of around $15.
October-December: Bitcoin moves to new highs
In October, DeFi yields began to decline, and all low-hanging innovations available to DeFi developers have dried up. The amount locked in the DeFi agreement is still increasing, but at a slower rate. The trading volume of decentralized exchanges such as Uniswap can explain the problem. The trading volume of DEX dropped from USD 8 billion a week to USD 6 billion in September at the end of August. In October, it dropped by more than 40% to less than USD 3 billion.
DeFi has lost its brilliance, but replaced by a new financial wave, once again swept the crypto world, that is, Bitcoin is reaching new heights. We all know that Bitcoin has been stagnant throughout the summer. Starting in October, the price of Bitcoin was about $10,500, and then began to rise, rise, and continue to rise. By the end of November, Bitcoin had broken the historical high created in 2017.
DeFi attention is declining, but the industry is still in the stage of cryptocurrency inflow. After all, DeFi has become an excellent way to earn cryptocurrency revenue, otherwise these funds will be useless in the wallet. Although the new products of DeFi have not accumulated as much as in summer, DeFi is still growing. In early October, according to DeFiPulse data, approximately $11 billion was locked in the DeFi agreement. As of the end of December, the amount of DeFi locked up has been close to 15 billion US dollars.
DeFi after 2021
DeFi looks like there will be several directions next year:
First, as companies including large financial institutions continue to invest in cryptocurrencies, many companies may seek to integrate cryptographic technology into their products.
Second, Diem (formerly Libra) will launch its stablecoin next year; PayPal will continue to launch its encrypted products globally; large US financial institutions may custody their customers’ cryptocurrencies.
In addition, as the project becomes more stable, crypto exchanges will continue to get involved in DeFi. Many exchanges such as Binance and Huobi have invested large sums of money in DeFi. For example, Huobi has its own DeFi research laboratory, and new products may be introduced to the market next year.
Part Two DeFi Top Ten “Black Talks”
1. Liquidity mining
The process of investors earning more tokens by staking cryptocurrency in the DeFi protocol fund pool is called “liquid mining”. Investors involved in liquidity mining are therefore called LPs, or liquidity providers. Liquid mining has become “income farming”, and LP has also become “DeFi farmers”.
2.DeFi “farmers”
This summer, a large number of liquidity mining projects with food as the token name appeared in the DeFi market. The liquidity providers participating in the mining are dubbed “DeFi farmers”.
The first DeFi project named after food tokens is Yam Finance (sweet potato). Since then, there have been countless mining projects named after bread, pizza, kimchi, sushi, hot dogs, and pickles in the market.
3. Scientist
The term “scientist” in the cryptocurrency market is not a scientist in the traditional sense. The term was born due to the DeFi boom and can be divided into the following three explanations:
Those who are good at using DeFi agreements to speculate and arbitrage to obtain huge profits;
People who specialize in Dapp and DeFi wool;
Programmers who accidentally enter the DeFi market and earn a lot of income through technical means.
4. Head mine
After the DeFi protocol starts liquid mining, the tokens earned by early investors through mining are called “top mines”.
5.AMM
AMM is the automatic market maker model. This model changes the traditional order book transaction method and provides users with an “exchange-style” transaction experience so that they can complete transactions in time and become a market maker without any threshold.
Currently, Uniswap, Bancor, Kyber and other decentralized trading platforms (DEX) all adopt the AMM model. Unlike the way that centralized trading platforms store order books on centralized servers, DEX trading methods are stored on the chain, so users need to pay Gas fees when using such platforms.
6. Impermanence loss
The tokens pledged by the liquidity provider in the fund pool are “moved away” by the arbitrageur, which is called impermanence loss.
This process is: the liquidity provider pledges the tokens on the AMM platform to earn LP tokens, and when it is ready to end the pledge and redeem the tokens, the redemption amount is less than the original pledge amount, then the liquidity provider loses That is “Impermanence Loss”.
7. Machine gun pool
The DeFi machine gun pool is similar to the traditional machine gun pool. The traditional machine gun pool automatically switches the computing power to a currency with higher revenue based on the level of real-time mining revenue. The DeFi machine gun pool automatically switches funds to higher project mining based on the level of DeFi project income. The essence of both is to maximize revenue through intelligent adjustment strategies.
8.Dog
In the DeFi field, “tu” corresponds to “domestic”, and “tugou” refers specifically to the domestic project tokens on Uniswap.
9. Lock-up amount
The locked position is the amount of funds pledged in the DeFi agreement. It is regarded as one of the indicators to measure the scale of DeFi agreements. Data shows that as the DeFi market has become more popular this year, the amount of funds pledged in the DeFi agreement has also increased, from $600 million at the beginning of the year to the current $14.3 billion.
10. Fair start
Fair start is a method of token distribution, which refers to “no pre-mining, no investor share, tokens are only obtained through liquidity mining”. This method was designed by Andre Cronje, founder of Yearn Finance, and has been imitated by a large number of emerging DeFi projects.
