DeFi: No break, no stand, the future can be expected

Conflux Chinese Community (ID: Conflux-Chain)

Conflux Chinese Community (ID: Conflux-Chain)

, reprinted by Odaily with authorization.

2020 is destined to be a year in history.

On January 2, 2020, 41 patients with new type of pneumonia were diagnosed. Subsequently, the new crown pneumonia epidemic spread, and people's fears were slowly released. On February 3, the first day after the Chinese New Year, the stock market opened, and more than 3,000 stocks directly fell by the limit. The pace of domestic coronavirus cases in China had slowed in late February.

On March 9, international oil prices plummeted by 31%. The three major U.S. stock indexes plummeted at the opening. market mechanism), creating the largest one-day drop since 2008 and the second circuit breaker since 1997.

Buffett Bemba said: "In my 89 years of life, I have never seen anything like this."

The old leeks were cut to pieces, and the new leeks were eager to buy the bottom. There is good news for the new infrastructure, buy! Oil plummets, buy! Gold plummets, buy! The time to complete the self-cultivation of leeks broke the historical record again. The old man also said that I am greedy when others are fearful. A friend updated his circle of friends: "There have only been three circuit breakers in the history of US stocks, and the last one dates back to March 9, 2020. I remember that day deeply, as if it was just a few days ago." A bunch of people commented : "Dude, is this the right time to buy the bottom?"

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01. The domino effect reshuffles the digital currency market

Oil prices have collapsed, US stocks have collapsed, will the digital currency market be a safe haven? Known as "digital gold," the third halving of Bitcoin is expected to take place on May 25, 2020. In the middle of 2019, the currency circle began to count down to welcome the halving of Bitcoin. Some economic models even predict that Bitcoin is expected to rise to $100,000 during the halving period.

You must know that the original intention of Satoshi Nakamoto to design the blockchain system was due to the inflation problem caused by the US government’s unlimited issuance of currency during the 2008 economic crisis. In this new currency system, everyone has the right to keep accounts, currency cannot be issued at will, and the entire account book is open and transparent.

As soon as you grit your teeth, you're done. Ever since:

You took a heavy position in A shares, he studded crude oil, and I bought the bottom of the currency circle.

The currency circle in 2020 seems to have taken the wrong script. Instead of the expected gorgeous reversal, on the contrary, the doom of the plunge is as unstoppable as dominoes, knocking down the last confidence card in people's hearts.

In two days from March 12th to 13th, Bitcoin plummeted by nearly 50%, with the lowest quotation of $3,800, and nearly 430 billion yuan evaporated within 24 hours. This was the largest single-day drop in Bitcoin in six years. More than 100,000 people have suffered liquidation on the entire network, and the total amount of liquidation is about 2.93 billion US dollars.

In the face of unprecedented decline, the important role of maintaining the stability of the blockchain system, the life and death of mining machines, has aroused everyone's deep concern. On March 13th, Yuchi released a price chart of shutdown coins. Based on the electricity price of 0.38 yuan/kWh, 10 mining machines have reached the shutdown price, including: Whatsminer M3, Avalon A741, Ebit E9+, and Antminer T9+ , Avalon A821/A9, Innosilicon T2, and the mainstream Antminer S9 on the market, a total of 220,000 units have been shut down on the entire network.

Holding digital gold in hand, I never thought that the ending of the story would be:

You chose to hang yourself, he fell asleep on the track, and I stood on the roof.

The sharp drop in currency prices caused panic among currency holders. When they wanted to stop losses and escape in time, many centralized exchanges experienced downtime and maintenance, which restricted the withdrawal of ERC20-related currencies, and users could not timely Closed positions and even suspended OTC trading.

The community group exploded, and the panic that accelerated the contagion seemed so pale and powerless in the face of the "technical maintenance" of the centralized system.

Bitcoin, the totem of the currency circle, plummeted, followed by mainstream currencies such as Ethereum and EOS.

ETH fell from $250 to a minimum of $87 in two days, a drop of 65.2%, and EOS fell by 53.18% in two days. At the same time, Ethereum, which hosts a large number of DeFi and DApp applications, has exposed performance bottlenecks.

Since every step of the operation on the Ethereum chain needs to consume the Gas Price cost, the miners will determine the priority of packaging transactions and producing blocks according to the Gas Price. Once there are a large number of transactions, the transactions with high Gas Price will be packaged first, while the transactions with low Gas Price will always be waiting in the queue, which will affect the normal progress of transactions and cause massive congestion on the Ethereum network.

On March 12, with the large amount of transfers, top-ups, and top-ups and withdrawals by users, the Ethereum transaction fee rose to about 10 times, and once reached the point where a Gas Price worth 1 ETH was required to successfully package a transaction. On that day, the transaction fee of Ethereum was as high as 564,000 US dollars, far exceeding the 298,000 US dollars paid by users on the Bitcoin chain. Even so, increasing the handling fee still cannot solve the problem of the native performance of the ETH system.

During this period, stablecoins, as an important medium of exchange, experienced a premium. Whether it is futures hedging, mortgage coverage, or taking the opportunity to buy bottom, it is inseparable from the stable currency with the least fluctuation in value risk. When everyone is scrambling to withdraw cash, the USDT copied by the centralized exchange will soon show a prototype that is difficult to cash. Just like N95 masks during the epidemic, USDT, with its status as an indispensable trading medium and hedging tool, has firmly carried the banner of "shortage" and "urgent need". In the case of too many monks and few porridges, the RMB exchange rate of USDT once exceeded 8.

Many people outside the circle began to question the value and significance of digital cryptocurrencies: "Bitcoin, a naked scam. Digital cryptocurrencies will return to zero sooner or later."

We will not take the blame for the scam.

In addition to the rampant epidemic and the impact of the global economic downturn on investor sentiment, the author believes that the one thing that really needs to be blamed is that a large number of currency holders still rely on centralized mining pools, exchanges and lending services. It violates the original intention of the design of decentralized systems such as Bitcoin. In the face of the fire, the disadvantages and limitations of the centralized system have further promoted people's panic, which can be described as adding fuel to the fire.

The other is the unavoidable performance bottleneck of the decentralized network. Economic crises will appear periodically, and it does not matter if a crisis occurs, what is more important is the emergency firefighting capabilities of the platform.

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02. Destroy you, has nothing to do with you --- fragile DeFi building blocks

In times of crisis, facing the "technical adjustments" of centralized exchanges and lending platforms, the DeFi platform seems to be able to stand up and fight a good battle due to the high barriers to use and poor interactive experience.

• DeFi, the full name of Decentralized Finance, is a financial tool that operates in a decentralized system. The Bitcoin system came into being after the financial crisis in 2008. More than 10 years later, in the face of another global financial tsunami, has the decentralized financial product DeFi on Ethereum and other public chains delivered a satisfactory answer? The natural advantages of decentralization should reduce credit costs and realize value return when a major crisis occurs.

However, with the market fluctuations of digital currencies such as Bitcoin and Ethereum, the fragility of DeFi is clearly visible.

If the public chain is the foundation, then the DeFi applications built on it are like building blocks. If the foundation is not firm, no matter how tall the building blocks are, they will fall in the wind. The lock-up value of the booming and promising DeFi market has also returned to before liberation amid overnight fluctuations in the currency circle.

According to statistics from the Debank platform, the total lock-up volume of DeFi dropped to 660 million US dollars on March 12, a decrease of 46% compared with the peak lock-up volume of DeFi in 2020. The total liquidation amount of DeFi exceeded 23 million US dollars, which is 15 times that of the previous day. The big blockage of Ethereum also contributed to the total amount of liquidations in the entire DeFi market.

• The fall and self-help of the central bank MakerDao on Ethereum

The king of DeFi, MakerDao, the central bank on Ethereum, is not alone in this shock. On the evening of March 12, MakerDao liquidated more than $10 million. Since Maker’s liquidation procedure is carried out in the form of mortgage auctions, the downturn in the market has led to liquidators generally participating in the bidding with a mentality of picking up leaks during the auction. More than 8 million US dollars of collateral ETH directly led to a non-performing debt position of more than 5 million DAI.

On the evening of March 12, the Ethereum network was congested for at least 4 hours. According to the auction records, it can be seen that the auction ended when there were no other bids for a full 3 hours after the $0 bid.

• The non-performing debt warehouse of more than 5 million U.S. dollars caused Maker to start the self-rescue mode, reducing the stability rate of DAI from 8% to 4%. On March 16, the Maker Foundation again lowered the stability rate of DAI to 0.5 according to the vote %, and plans to auction MKR on March 19 to repay the undercollateralized debt.

Liquidity Crisis in Lending Protocols

Since most DeFi lending protocols rely on overcollateralization, as a large number of loans fall below the collateralization threshold, more and more accounts trigger liquidation. DeFi products with a small capital pool had a liquidity crisis at this time. Users' deposits were lent out, and the borrowing accounts had not been liquidated in time. Deposit users could not withdraw coins, and the experience was extremely poor.

After two days of bloodbath, the amount of deposits and loans in the DeFi market has also been greatly reduced:

The embarrassment of DeFi users on classic cars

Ethereum users under the market plummet are like refugees sitting in classic cars to hide from mountain torrents.

The speed of classic cars is slow, and a transfer transaction cannot be uploaded to the chain in an extraordinary period. The borrower cannot replenish the collateral in time, and can only watch the account being liquidated.

Fuel costs for classic cars have soared, and fleeing users are distressed to cut their flesh, but they can only bite their teeth and swallow them.

Classic car navigation can’t keep up with environmental changes, a large number of oracle machines can’t update prices in time, and traders can’t place orders for spot prices in a timely manner. On the night of the plunge, the price of the MakerDao oracle hovered for a while.

8 BTC were liquidated due to a community user’s inability to replenish their positions in time, and Roast Boy felt distressed when he saw this.

In the midst of wind and rain, the performance of decentralized exchanges is not bad.

In the development of decentralization, we still have a long way to go. The DeFi ecology is still very young, but the future is still promising. In the turbulent waves of the past two days, the operation of centralized exchanges that can shut down withdrawals at any time has become an irresistible storm eye, while the trading volume of decentralized exchanges allows us to see the public's trust balance in the face of crisis. It makes people more determined to choose a decentralized system.

The foundation is not stable, no matter how prosperous the ecological construction above is, it is just a mirror in the water, and the vulnerability is obvious at a glance. If the foundation is strong enough and all transactions can be carried out in an orderly manner without bandwidth restrictions, then DeFi will surely stand the test of the times and stand firm.

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03. Qi said no clothes, and the same robe with the son - carry open finance to the end

Many people say that compared to ecological construction, performance is not that important. Every new public chain claims that its performance is high, but which chain’s ecology is more prosperous than Ethereum?

In the face of this catastrophe, the performance of the underlying infrastructure is even more important. This is not the first time Ethereum has experienced congestion. When the CryptoKitties game was first launched in January 2018, the public scrambled to play the cats, which led to the first congestion in Ethereum, and the transaction fee reached a high price of $0.02 for the first time. In July 2018, after a fund game called Fomo 3D was launched, it directly caused the number of transactions to be confirmed in Ethereum to exceed 70,000, and another blockage occurred. Until March of this year, everyone said that Xiaosheng had already watched this episode.

The financial crisis in 2008 brought economic losses of up to 8 trillion euros to the global financial system. In 2020, the liquidation congestion in the currency circle peaked at only 16 million US dollars. Compared with the scale of the traditional financial market, the scale of financial assets on Ethereum is so small, but such a small transaction scale cannot be carried by Ethereum. Not only can it not withstand the test of market changes, but it also makes people touch the ceiling of Ethereum ecology.

Developers collectively call for the arrival of ETH2.0 Phase 0 in the community. Not to mention whether the 0 stage under the POS mechanism can pass the test of security, it is enough to show that everyone's goal is the same: the market needs a high-performance underlying network facility without losing security, and only a strong enough foundation can build enough The scaled buildings that resist the torrential torrential rain can only accommodate the Mercedes-Benz of countless luxury racing cars if the runway is wide enough.

The truth is understood, but the actual deployment always requires forward-looking thinking and vision. We can never predict risks, but what is certain is that risks and accidents will always appear periodically.