Opinion: The development space of DeFi will surpass that of Ethereum

In yesterday’s article, I wrote that in my opinion, DeFi is the third large-scale application scenario after Ethereum, and the development of DeFi is still in a very early stage.

Although in the decentralized blockchain world, the concepts and business models of many new projects are very different from the traditional Internet and physical fields, but I think that in the DeFi field, not only will there be a group of highly innovative projects that Scenarios that many people cannot understand at first glance (such as AMPL) will also appear in a large number of scenarios that have been verified in the traditional financial field and are very likely to be moved to the blockchain world, such as mortgage (MakerDAO), lending (Aave , Compound), trading (Uniswap), etc.

This gives us as investors a lot of leeway and space to discover new gems and the next unicorn in the DeFi field.

Let's follow the simplest way of thinking to see what application scenarios already exist in the current financial field, and then compare and see what is already there in the current DeFi field, but what is not there yet, we will find that in the DeFi field, traditional finance There are still a large number of application scenarios in the field that have not yet been realized in the DeFi field or even if they are realized, they are still in their infancy.

For example, in the futures leveraged trading market, although some projects (such as Hegic, dydx, perp, etc.) have emerged, these projects are only temporarily leading, and there is no dominant situation.

Another example is the insurance market. Among the only projects currently available, there are no particularly leading projects. NXM, who is temporarily leading, has a serious problem in my opinion. A while ago, the glorious COVER was attacked unexpectedly, and NSURE is still groping.

If we broaden our horizons and look back at history, we can discover more scenes.

Let's just say that the 2008 global financial crisis is not too far away from us. The financial derivative that triggered that crisis was called subprime mortgage CDS, which was a financial derivative produced by various packaging by financial institutions. Financial institutions sell to investors regardless of risk for profit. When the interest rate rises, the risk of this derivative product is completely detonated, causing the capital chain in the market to break, and the liquidity to dry up, which causes risks to spread throughout the market, and eventually collapses.

Derivatives like this do not exist at all in the current DeFi. I believe that due to the greed and curiosity of human nature, there must be a very creative team thinking about how to introduce thousands of CDS and various derivatives in the traditional financial market into this completely unregulated, free-wheeling market. in the world. And such derivatives rely on more other underlying financial products, and many of these underlying financial products do not exist in the current DeFi.

I believe these products will eventually be created.

How many star projects will be born in this process? How many hundred times coins, thousand times coins or even ten thousand times coins?

If these products are created, the value of the various derivatives they generate is very likely to be comparable to the value of various financial products in the traditional financial market.

In 2018 alone, the scale of global financial derivatives reached nearly 700 trillion US dollars. If derivatives in the DeFi field gradually mature in the future, will this scale also reach trillions of dollars?

And now, as of the time of writing, the total locked-up market value of the top 60 projects with locked-up value is only more than 20 billion US dollars. The imagination space in this is as high as ten thousand times.

Many opinions in the circle believe that the total market value of all DeFi project tokens is still relatively low, and that a more reasonable market value is 50% or more of Ethereum, but I think that if you benchmark against traditional finance, DeFi projects It is entirely possible that the total market capitalization of tokens will surpass that of Ethereum.

Why? Because purely from the perspective of the logic of financial business, there is not much difference between off-chain and on-chain, and off-chain business can be moved to on-chain, so it is entirely possible for off-chain financial scenarios to be realized on-chain , and the efficiency on the chain is higher, and the imagination space will be larger.

Therefore, for a long period of time in the future, we should all pay close attention to DeFi, and there will be more projects like YFI and UNI.