At the end of last year, I wrote an article about three major trends in 2020. Before making the three predictions for 2021, let’s review how I did the previous predictions.
1. Smart contract insurance
Conclusion: correct.
Nexus Mutual’s insurance coverage has increased from 1.1 million USD to 56.4 million USD in 2020, a 50-fold increase in one year!
In 2020, bZx, dForce, Opyn, Harvest Finance, Value DeFi, Origin Protocol, Akropolis, Pickle Finance and other hacking attacks lost more than $93 million. Nexus successfully paid the first compensation in the bZx hacking. At present, US$14 billion is locked in the DeFi smart contract. The DeFi project is a huge asset for hackers, and more risk-averse individuals and funds want their deposits to be protected.
Another important revelation of these hacks is that smart contract audits are not as meaningful as before. The auditing company’s schedule is fully booked, and even without auditing other types of vulnerabilities (for example, flash loan attacks), it may lead to missing bugs under the pressure of deadlines. In the future, I hope to see that part of the funds used by the project to pay for expensive audit fees is used to motivate users to purchase project insurance.
2. Joint curve
Conclusion: correct.
In the competition with decentralized trading platforms based on order books and Dutch auctions, AMM-based trading platforms are clearly a winner. Especially Uniswap, which occupies more than half of the market share of decentralized exchanges. As the AMM trading platform is devouring the order book market, this has triggered the anger of vested interests, who feel threatened by the joint curve.
We have also seen the rise of AMM joint curve trading platforms tailored to solve specific trading use cases. Curve specializes in the conversion from stablecoins to stablecoins, as well as Bitcoin swaps based on Ethereum, using constant and/or constant product combined curves to minimize the slippage of trading pairs whose prices are not expected to deviate significantly. Notional, which provides fixed-rate fixed-term loans, uses a logarithmic curve to minimize interest rate slippage in zero-coupon bond transactions, especially when they are nearing maturity.
3. Wallet user experience
Conclusion: wrong.
Compared with externally owned accounts (EOA), contract-based accounts are a major user experience improvement, and I predict that we will see explosive growth of smart contract wallets in 2020. However, the gas fee was not high at that time. Then in the “summer” of DeFi, the gas price soared above 100 Gwei. This makes the deployment cost of smart contract wallets up to US$20 per new user, and Argent once spent US$584,000 a month to subsidize its users’ transaction fees.
Rhythm Note, Externally Owned Accounts refers to wallet addresses (accounts with public keys). Because wallets are owned by an external “person”, they are “externally owned”.
Considering that the Gas fee will not drop soon, Metamask’s dominance will continue to exist. The use of DeFi will continue to be driven by “whales” who are accustomed to the behavior of native encrypted wallets.
Here are the three major trends I predict in 2021:
1. Encryption art
Currently, DeFi believers are scornful of NFTs, which is reminiscent of BTC primitives’ rejection of dApps in 2018. But the reality is that there is a very enthusiastic community of artists and collectors in the industry-I know this is first-hand information because my SuperRare Twitter bot receives nearly a hundred notifications every day. In addition, the trading volume of the crypto art industry has increased by more than 50% month-on-month and has been quietly accumulating…until December.
Beeple, a digital artist with more than 1.7 million Instagram followers, recently discovered NFTs and tokenized some of his artworks. One of the works set a record for encrypted artwork at $777,777.77, and Beeple currently ranks first among crypto artists with a total art value of nearly $6.5 million.
Other articles have discussed cryptographic art opportunities in depth, but I will briefly summarize why I think cryptographic art has so much potential.
First of all, blockchain can easily verify the authenticity of artworks, while traditional artworks, such as Picasso’s paintings, are difficult to forge but also difficult to verify.
Secondly, NFT opens up a new business model for digital artists because they can now sell personal artworks without relying on commissions from commercial customers.
Third, crypto art is in a good position to capture the changing taste of the art world from baby boomers to millennials.
Finally, cryptographic art is one of the potential main ways to use blockchain and cryptocurrency.
There are currently three artists with a total value of more than US$1 million, and 43 artists’ total value of more than US$100,000. I hope to see more works than the end of 2020
2. Predict the market
A major event in 2020 that has not been reported by mainstream media is that public opinion polls believe that Biden has an 85%-90% chance of winning the election, while the prediction market believes that this probability is around 60%-65%. In hindsight, the results of the election were much closer than expected, and the opinion poll experts were completely wrong. To make matters worse, opinion polls are a multi-billion dollar industry, and hundreds of millions of dollars in campaign funds have been wasted due to inaccurate polling data.
In a society that does not trust mainstream media, as a source of information, we have long been optimistic about the prediction market. Now, the prediction market has reached a one million inflection point and trading volume has reached tens of millions of dollars. Not only do I hope to see more markets reach tens of millions or even hundreds of millions of transactions in the coming year, but I also hope to see the media more often use the prediction market as an information source to report events, such as Eth2 Phase 0 roll out.
3. DeFi derivatives
From 2018 to 2020, we have seen the development of DeFi infrastructure. This includes lending agreements (such as Compound, Aave), trading platforms (such as Uniswap, Curve, Balancer), and asset issuance agreements (such as USDC, DAI, WBTC). As these basic layers continue to grow, the huge liquidity based on this allows a new layer of derivative financial instruments to be established. The more obvious examples include structured products, index ETFs, options, futures, swaps and so on.
In traditional finance, the scale of the derivatives market is several times that of the spot market. BlackRock has a market value of US$100 billion, and the total market value of structured financial products is estimated to be 5 to 10 times higher (US$500 billion to US$1 trillion). If you want to extend to the DeFi industry, this means that there are major opportunities in derivatives projects, and the current is only the tip of the iceberg of everything that is coming.
