The "starting point, inflection point and high point" of the DeFi world, everything has just begun after the callback
Within a few months, DeFi has experienced a super bull market.
If counting from the 3.12 black swan incident, in just half a year, the total market value of the top 100 DeFi project tokens has doubled 20 times, touching 10 billion U.S. dollars, and the total value of DeFi ecological pledge assets has also risen from 450 million U.S. dollars to 9 billion U.S. dollars. Turned 20 times. During this process, it took only 45 days for YFI to increase by 10,000 times, and the highest price reached 38,000 US dollars - one YFI can buy 3 BTC. These prosperity also doubled the price of Ethereum in just one month.. ....
Participants, once again witnessed the "speed of the blockchain". As a result, fascinating words such as "the game has changed", "retail investors kill VC", "ETH surpasses BTC", "decentralized financial revolution" and so on have become popular.
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From MakerDAO to Bancor, the starting point of classical DeFi
Wan Hui, the founding partner of Primitive Ventures, divided DeFi into four categories, namely classical DeFi, retro DeFi, pioneer DeFi, and radical DeFi.
Among them, classical DeFi is mainly represented by MakerDAO, Bancor and Compound. The development history of the three perfectly interprets the starting point, inflection point and high point of DeFi. This article focuses on classical DeFi. In subsequent articles, we will continue to explore the possibility of retro DeFi, pioneer DeFi, and radical DeFi.
MakerDAO, Bancor, the beginning of the DeFi world.
Looking back at the development history of the MakerDAO project, taking the total value of MakerDAO’s pledged assets as the main line, supplemented by major events at the inflection point, a relatively clear development sequence can be sorted out. After all, it has only been 2 and a half years since MakerDAO was born.
On December 9, 2017, the decentralized stablecoin project MakerDAO was launched. At this time, the Dai issued only accepted ETH as a single collateral. On November 18, 2019, Maker announced the launch of a new type of multi-collateral Dai and began to accept BAT as Mortgage assets to issue stable currency Dai, and gradually accept USDC and wBTC as collateral in 2020.
From the launch of MakerDAO to June 2019, in one and a half years, the value of assets pledged on MakerDAO has basically been rising slowly and straightly, although there are some twists and turns in the middle.Since then, by the middle of 2019, as Bitcoin entered a downward channel from 14000U to 8500U, the total amount of MakerDAO assets pledged entered a rapid decline. After that, it entered the second stage. From the middle of 2019 to the end of 2019, asset pledges on MakerDAO gradually increased, but the growth rate did not change significantly. After January 2020, the world of MakerDAO ushered in a huge turning point. In the 3rd, 4th, and 5th stages thereafter, the total value of MakerDAO’s pledged assets began to fluctuate violently and rose rapidly.
This rule is also very obvious in the DEX project Bancor. We have seen that after January 2020, the amount of assets pledged by Bancor also experienced violent fluctuations, and then rose rapidly.
The reason for such drastic changes has a lot to do with the entry of institutions into DeFi.
In Q1Q2 of this year, many crypto institutions have entered DeFi one after another, such as Fenbushi Capital, Coinbase Venture, Morgan Creek Digital, Multicoin Capital and other Wall Street-backed investment institutions are vigorously deploying DeFi. In addition, like Polychain, it claims to manage $1 billion in capital and is also a heavy investor in DeFi.
Everything from mediocrity to excellence has its inevitability. The turning point of all this is the issuance of COMP tokens by Compound and the start of "borrowing is mining". This completely detonated the entire DeFi market, making people realize what kind of imagination space will be brought about by injecting liquidity into DeFi.
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Compound's "Lending is Mining", an inflection point in the DeFi world
On June 16, 2020, Compound’s governance token COMP was launched, and the loan-to-mining model was launched immediately. Since then, the value of assets on Compound has grown explosively. The pledged amount of project assets increased rapidly from US$100 million to US$900 million in two months.
If MakerDAO is just the Federal Reserve of the decentralized financial world, then Compound is a commercial bank responsible for pledged lending, issuing COMP to reward investors who participate in pledged lending, and listing COMP to encourage more people to participate in pledged lending. In this way, assets began to grow explosively.
Compound’s loan mining has completely activated the entire DeFi world. After June 16, the amount of pledges in the DeFi ecosystem also began to explode, climbing from $1 billion to $10 billion in just over two months.It can be said that the launch of Compound's "borrowing and mining" has become an inflection point in the development of the DeFi world.
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'Increased Liquidity' Brings Bull Market, DeFi Highs
We know that ETH is the most important basic asset in the liquidity pool of all DeFi projects. Taking Uniswap as an example, the value of pledged assets reaches up to 1.56 billion US dollars, of which ETH reaches 760 million US dollars, accounting for half of the total asset pool. At the time of the largest DeFi lockup, the asset value was US$9.5 billion, of which US$3.1 billion was Ethereum, compared with only US$700 million for Bitcoin.
It is generally believed that after Ethereum is pledged, its liquidity will become weaker, but this is not actually the case.
The staking liquidity mining of SushiSwap on September 1 directly caused the gas fee of Ethereum to soar, exceeding 400Gwei, and the number of transactions on the entire network in 24 hours exceeded 1.5 million, exceeding the historical high of 18 years, and the price of Ethereum hit a recent high Price $480.
Therefore, the lock-up does not reduce liquidity, but increases liquidity, and the increase in liquidity causes the price of Ethereum to soar. The reason is that in liquidity mining, even if the transaction fee for sending a transaction reaches hundreds of dollars, there are still people willing to pay for it.
The popularity of SushiSwap also directly caused the price of Ethereum to rise to a stage high of $480, and then the DeFi ecosystem entered a correction phase.
To sum up: Liquidity mining is essentially increasing the liquidity of Ethereum and DeFi project tokens. The greater the liquidity, the more active the transactions, the more fully the value of the system will be exerted.
It is impossible for any market to go up forever. After experiencing the madness brought about by SushiSwap, DeFi briefly entered a correction, and everything may have just begun.
In contrast, in the centralized financial world, the U.S. dollar is experiencing a money shortage caused by inefficient liquidity.
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Why the dollar is moving towards the opposite of "liquidity"
How the USD is going the other way compared to ETH’s increasing liquidity.
In the report "Valuating Bitcoin" released by Grayscale in August this year, the reasons for the depletion of US dollar liquidity were mentioned, and the results of this phenomenon were predicted.
The report believes that in the past half century, loose fiscal policies have prompted capital markets to borrow to buy assets, and in the global financial crisis of 2008, some of these debts were forced to be paid off. The quantitative easing policy (QE) during the financial crisis was aimed at alleviating the spiraling debt situation and saving the economy from the fire, but the result of QE was to add fuel to the fire.
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U.S. Debt-to-GDP Ratio and Money Velocity
In other words, a large number of dollar assets issued did not enter the real industry, but lay motionless in the financial market, resulting in a decrease in dollar liquidity.
Finally, the Grayscale report believes that starting in 2018, QE has led to an increase in the balance sheet of the Federal Reserve Bank of the United States from $1 trillion in 2008 to $4 trillion in 2014. As the economy shows signs of strength, the Fed plans to Reverse this expansive stance. However, when the Federal Reserve tried to shrink its balance sheet in 2018, the market immediately gave adverse feedback, and the Standard 500 Index fell by 20% in just 3 months.
From this point of view, unless QE personally destroys the financial market it is struggling to support, the trend of quantitative easing cannot be reversed at all.
Currently, DeFi is facing a huge correction, and maybe everything has just begun.
