The Spear and Shield of DeFi: How DeFi Becomes the Engine of the Next Bull Market
On March 12 this year, under the chain influence caused by the black swan of the epidemic, the digital currency market suddenly plummeted, and we experienced the darkest day in history, followed by the DeFi (decentralized finance) ecology returning overnight to before liberation , the value of DeFi pledged tokens dropped from the highest point of 1 billion US dollars to 50 million US dollars.
But only in the past three months, the total value of DeFi ecological pledge assets has returned to 1 billion US dollars, and the total market value of DiFi projects has exceeded 3 billion US dollars. On June 16, the market value of Maker, the leading DeFi project, was surpassed by Compound, and the competition on the track became more intense , Institutions are also investing in the construction of the DeFi ecosystem, and the tokens of various DeFi projects are skyrocketing. These phenomena all illustrate a problem. DeFi is still the most important development trend in the industry.
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What has DeFi experienced in the past three months
On March 12, as the digital currency market plummeted, Ethereum-based DeFi projects had a domino effect. MakerDAO, as the largest mortgage lending platform, had an unexpected black swan event, causing everyone to worry about the prospects of DeFi .
Since Ethereum fell by more than 50% within 24 hours, the operating mechanism of MakerDAO began to deviate from the track. The value of the collateral ETH held by Maker was less than the stable currency DAI they released. The Ethereum network was also congested, and many liquidators were auctioning In the auction, ETH was sold at a price of 0 US dollars, and a hole of 5 million US dollars appeared in Maker's balance sheet, and panic was pervasive in the community.
To put it simply, because most of the collateral ETH suddenly depreciated sharply in a very short period of time, the Ethereum network was congested, and the liquidation agreement of the platform was implemented at a severe discount. The borrower can leave with the borrowed money and give up the collateral. People are in a state of loss, and those lenders who are unfortunately liquidated naturally cannot accept this fact.
Fortunately, Maker handled it in a timely manner and quickly formulated a solution. On the morning of March 19, the Maker Foundation began to auction the newly added MKR ecological governance tokens to repay debts. Although all holders of MKR will face asset dilution, but This move also successfully allowed Maker to tide over the difficulties.
According to Murphy's law, even a catastrophic event with a small probability will happen one day. The financial market has always been like this, but the crisis is the best opportunity to learn and improve. With this accident, whether it is MakerDAO or other DeFi protocols have begun to increase measures to deal with extreme situations, which is also a major reason for investors to regain confidence.
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DeFi bull market engine
Since March, capital institutions have begun to lean towards the DeFi ecosystem. The whereabouts of funds will not deceive people. It is the most intuitive manifestation of investors' optimism in this market. On March 27, the cross-chain DeFi platform Acala announced the completion of a $1.5 million seed round of financing; on April 2, the centralized exchange Uniswap and the decentralized lottery PoolTogether received an investment of $1.1 million; on April 3, the cross-chain BTC project Thesis, the project owner of tBTC, announced the completion of $7.7 million in financing...
DeFi’s implementation of various financial agreements with open and transparent codes has given people unlimited imagination. After experiencing the historic turmoil in March, the number of DeFi users has been rising all the way. Regarding the recent rising DeFi, Chris Burniske, a partner of the well-known investment institution Placeholder Commented: "If you think DeFi has less impact on ETH than IC0, it means you haven't noticed it. The prosperity of IC0 has changed Ethereum's ability to provide a financial service: the formation of early capital. And DeFi, will The ability to flexibly leverage Ethereum to execute all financial services."
The deeper your understanding of DeFi, the more you understand the meaning of this passage. DeFi surpassed CeFi (centralized finance) in terms of BTC dollar lending rates; the supply of decentralized stablecoin DAI increased steadily; the scale of DeFi mortgage assets gradually increased. All signs are showing that DeFi is expected to become the engine of the next round of bull market, because it is fully capable of absorbing all idle assets and forming a liquidity black hole, which many institutions are aware of.
In the current market environment, except for the DeFi field, almost no institutions have invested in other sectors, because currently only the DeFi ecosystem is booming, and the most outstanding among them is the stable currency.
We can see that whether it is USDT, USDC, PAX or DAI, they all have a common feature, that is, the circulation has been growing steadily. The rich stablecoin system meets the basic financial needs of users such as asset mortgages and peer-to-peer lending, and also enables the initial formation of a non-accessible DeFi ecosystem, which is the basis for accepting a large number of new users.
There is also a more obvious indication, which is the list of coins under investigation by Coinbase, a well-known compliance exchange in the United States. Projects that may be listed on the Coinbase trading area.
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Competition in the DeFi field is fierce
There is bound to be fierce competition in a hot field. Before June 16, Maker, the leading DeFi project, had always had the highest market value among DeFi projects. Now, Compound has broken this status. The following are the top ten DeFi projects by market capitalization. They basically cover the relatively mature and active directions.
Why can Compound surpass Maker to become the No. 1 in DeFi? As the two established lending platforms at the same time, why did Compound become the leader?
This has to mention the "loan is mining" activity of the governance token COMP launched by Compound in the early morning of June 16. Simply put, users only need to participate in lending on the Compound platform to get COMP token rewards. It is hoped to turn users into stakeholders of the agreement, and develop together in a community governance model.
This activity is very similar to the trading-mining model of the FCoin exchange. The higher the price of COMP, the stronger the motivation for users to save and borrow money. Judging from the current situation, users borrow money on Compound, not only do not need Spend money and still make money. Currently, the interest rate of USDT on Compound is as high as 11.66%.
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Seizing the DeFi track has become the consensus of many institutions at present, and Ethereum, as the largest foundation of the DeFi ecosystem, is tantamount to the biggest beneficiary. The goal of Ethereum becoming the global "financial settlement layer" has become increasingly clear.
The rise of DeFi can also be understood as an unexpected gain after the failure of many public chains to encircle and suppress Ethereum. When people find that the public chain track cannot break through, they can only return from idealism to realism and combine digital currency with the most basic financial attributes. , to achieve value return.
Capital will definitely be ahead of the implementation of technology, because financial capital is responsible for speculating on the existence of new technologies. Speculation promotes the growth of capital. With capital, some people have resources, and then they can be deployed on a large scale to a common vision. Just like IC0 in the last round of bull market, this time DeFi is no exception.
