On Competition, Governance and Accountability of DeFi Protocols
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1) LongHash: How do you view Bitcoin price fluctuations?
, about 90% of Bitcoin’s on-chain activity is associated with exchanges—a measure of the impact of price volatility on speculation.
Second, it is now relatively easy to analyze the level of interest in Bitcoin through Google Trends data. As the chart above shows, there have been spikes in searches during several of Bitcoin’s big moves. Note that this is not a Western-specific phenomenon, and a similar trend has emerged for bitcoin searches on Baidu.
The general public doesn't care about Schnorr signatures, sharding technology, etc. Most people are simply watching the market.
The last indicator is the most direct link between Bitcoin price fluctuations and new users added to exchanges. Whether it’s skyrocketing prices or historic crashes, you can be sure that the number of registered users on exchanges will skyrocket in response to media coverage of price changes.Satoshi Mamoto’s comment: In another articleWill the Myth of Bitcoin Be Busted?
In the article, the author pointed out that "BTC has gradually become a risk asset, not a safe-haven asset... When we began to look forward to the Bitcoin ETF, we had already lost. BTC failed, and Satoshi Nakamoto failed."
Bitcoin’s volatility attracts attention and speculators, it’s a funnel of users, some stay and become builders, Bitcoin is still an experiment.
Further reading:Further reading:
"Will the myth of Bitcoin be shattered?"
2) Multicoin Capital: On the fork of the DeFi protocol
Fork is a word that often appears in the field of blockchain. Mr. Liu Yi of Cdot once pointed out that "the essential feature of encryption protocol governance is not decentralization, but fork." The bottom line of community governance is the way to constrain and coordinate protocol participants.
In this article, Milk King Multicoin Capital discusses "what is the moat of the open source protocol when the fork becomes possible". The following are some excerpts from the article:about a year ago, iwrote an articleMakerExplain how second-tier assets (such as MKR, "equity" in the MakerDAO system) can capture value in a permissionless and open environment. In that article, I specifically emphasized that the key to value capture is "unreproducible state". At once
For DAI, the most obvious and non-reproducible state is the collateral (mainly ETH) that supports DAI.
However, it now appears that this framework is too one-sided. We can think of it this way, assuming Maker's only network effect is collateral. In this way, a well-funded third party could replicate all of Maker's contracts, create a fake version of the Maker system, and then deposit hundreds of millions of dollars' worth of liquidity. How will it evolve next? The knockoff Maker system would be useless without users buying or generating knockoff DAI.
The liquidity and availability of DAI is a strong moat. A well-funded knockoff Maker team could offer a higher Dai Deposit Rate (DSR) and pay third parties to access the knockoff DAI, but it's uncertain whether it will attract widespread usage.
Further reading:Further reading:
"The essence of the encryption protocol is not "decentralization", but the fork of the blockchain"
3) Governance, accountability and competition
This is an article written by Kerman Kohli, author of DeFi Weekly, commenting on the recent developments of MakerDAO and Compound.
Over the past few weeks, we’ve seen a flurry of announcements from MakerDAO about how the protocol is going to be decentralized and controlled by token holders. To me, this reflects two dangerous points:
They are increasingly worried about legal liability and trying to get out of any trouble that may arise
The number of committees, votes, and processes was so great that the agreement made no real progress relative to its competitors
It is reported that a group of traders jointly claimed $20 million from MakerDAO for the loss of assets caused by the market crash on March 12. Based on this, it's now understandable why they rushed to roll out these (announcements). I'm curious why MakerDAO chose to compensate these traders even though they voted (agreed) in governance. Regardless, the Maker Foundation may not have control over the protocol right now, but there is still a significant amount of MKR in their reserves. I believe the number is closer to $100 million.
It looks like the model in 2017 - setting up a foundation seems to be an increasingly bad idea, because it puts responsibility on a group of people who jointly manage funds. MakerDAO might be able to wash their hands and say this is out of their control, and the traders know it, but that's beside the point. There is a clear path to profitability in these events. If MakerDAO is not in the business of minting synthetic dollars, is there a valid use case (in the blockchain space)?
The second point that worries me is that this marks the death of MakerDAO due to governance. Personally, I've started multiple startups and stayed with companies at various stages. MakerDAO is now only able to grow at the speed of a 1,000-person company, not a 10-person startup. DAI has good liquidity and is a key moat, but it needs to be clearly stated: DAI has not fulfilled its mission of scaling fully decentralized stablecoins. $100 million (market cap) is very small compared to Tether and USDC (in billions).
We will see more and more teams attack MakerDAO until they find a model that works quickly and scales. Additionally, Maker has other non-legal issues to address:
Create more synthetic assets
Improved economic model for MKR
Create more borrowing demand to drive the deposit rate DSR (currently 0%)
4) Our Network: Analyze the data on the stablecoin chain
In this issue of Our Network, we review the development history and on-chain data of stablecoins, the recent status of the decentralized insurance alternative Nexus Mutual, the interest rates of mainstream DeFi protocols, and Chainlink’s on-chain data.
Throughout most of 2019, Tether on Ethereum outpaced all other stablecoins in terms of on-chain transaction volume. Tether's average daily on-chain transaction volume is about $835 million, while USDC's is about $145 million, and DAI ranks third with about $95 million in daily on-chain transaction volume.
Tether is primarily used to transfer value between exchanges and to trade between crypto asset trading pairs. This is evidenced by the fact that there are about $13 of Tether held on exchange wallets ($10 on Binance alone). Explanations for this phenomenon include:
Set limit orders on exchanges and wait for the perfect moment to buy
In response to the global shortage of dollars, stablecoins are being used more generally
In addition, the top ten trading pairs on Binance are all USDT trading pairs.
A good indicator of the health of a stablecoin is the number of on-chain transactions. More on-chain transactions means more usage. Removing Tether from our analysis reveals that DAI is the most actively transferred stablecoin. DAI averages 15,000 transactions per day. One thing to watch out for is Paxos (PAX). Pax started the year with about 4,000 transactions per day, but has averaged more than 10,000 transactions per day over the past 30 days.
5) Su Zhu: Overview of options products
The derivatives market continues to grow, and options play an important role in it. The CEO of the hedge fund Three Arrows Capital gave an overview of past and current option products, and he analyzed these products from the following aspects:
I – Duality: the ability to buy and sell the same option
II – Central Limit Order Book: The ability to place bid and ask prices in a publicly displayed order book that can be accessed by all in a similar manner
III – Portfolio Margin/Risk-Based Liquidation: Margin compensation (lower margin requirements) for portfolios that are incrementally hedged with other options and linear products such as swaps and futures.
IV – Ability to report large transactions. Institutions tend to deal on larger sizes and often negotiate terms via chat or other means. These OTC trades need to be reported to the exchange for processing and margin management.
This is the end of this issue of Satoshi Mamoto's Notes, see you next time.
