The rise of decentralized commerce, arbitrage and the future
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The rise of DeFi
A very important idea in "A Brief History of Mankind" is that in the process of growing up, human beings always like to imagine some objects to meet their own ideological needs, such as religion to belief, country to security, and shells to currency. According to the author's logic, the blockchain must also be a product of human obscenity, satisfying people's need for some kind of freedom.
In 2019, after the wave of ICO and exchanges, the remaining blockchain explorers are still innovating. The game between centralization and decentralization has never stopped, but the ideal spirit of decentralization is still the target of rule makers to (yi) to (yin). We have witnessed the innovation of many blockchain projects, from public chains (Ethereum, Cardano) to Dapps (EOS, Tron), from Dapps to multi-chains (Lightning Network, Raiden Network), and then from multi-chains to platforms (Cosmos , Polkadot). In "The Myth of The Infrastructure Phase", Dani and Nick summarized the PC and Internet era, the process of mutual achievement of infrastructure development and application development, saying that in the blockchain, platforms and applications will follow the same rhythm, APP=> Basic structure=>APP=>Basic structure... For human beings, the goal of innovation is always to meet certain needs, and undetermined things are generally produced through obscenity. This new concept of obsession Always popular, people are more willing to pick up a hoe and plow than a sickle.
Among new concepts, large concepts need to be spread for a long time to reach a consensus, while small concepts can arouse everyone's consensus in a short time. The interaction of big and small concepts forms a positive cycle for human beings to satisfy certain needs of themselves, that is, to satisfy first, then to destroy, and then to create satisfaction. Now, the proliferation of public chains has ruined investors' imaginations, and Dapp has destroyed speculators' expectations for short-term landing. Practitioners lament that being close to money is a double-edged sword, but in essence, this is another The performance of progress is very contradictory. Looking at 2019, the bear market is still there, but there are still new concepts emerging. Staking and Defi are the two most beautiful guys on the street. Staking meets people's short-term profit expectations, and Defi meets people's long-term profit expectations.
The two are clearly divided in terms of the time period of the outbreak. The first half of 2019 is the Staking market, and the second half of Defi is the protagonist. Both have a gestation period, which is about half a year. Since the middle of the year, Defi Protocol has become popular in professional circles, because the data of all Defi projects in the first half of the year have grown very well, and people's attention has begun to shift from the Staking market (the media often claims that the Staking trillion market) When it comes to Defi in a larger market. Among the Defi projects with a small number of digits, MakerDao carries more than 80% of people's attention to Defi projects. The excess attention comes from people's demand for the stable currency DAI in the stock market, covering most of the current The Defi scenario (that is, the preservation and lending of stable coins). In these two large areas, the rapidly growing data looks like this (January 2019 ~ June 2019):
According to DAppTotal data, the total borrowings of DeFi projects increased from US$24 million in January to US$173 million in June, and the total loans also increased from US$9.6 million in January to US$256 million in June.
People plan these projects into a new imagination, called Defi. This category includes some future-oriented financial services. The unified characteristic of these projects is to operate in a decentralized manner, which people are proud of and strongly promote. Among the currently recognized DeFi projects, including MakerDAO, Uniswap, Compound, DDex, and dydx, except for MakerDAO, which was launched in October 2017, the latter few projects were basically launched after October 2018. Like staking, a large number of PoS projects went live on the mainnet between 2019 and 2020, which directly detonated staking, while multiple Defi projects went online at the end of 2018, which also brought about explosive growth in Defi data. You can carefully observe the above data, the meaning behind the growth data is: more and more people dare to borrow money under code protection!
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The so-called Defi
Defi is the abbreviation of Decentralize Finance, literally translated as decentralized finance, after being understood and spread by the community, it has a higher meaning, called open finance, or distributed finance, also called distributed commerce. Translation of the definition From the front to the back, the scope of Defi is gradually expanding. In fact, this represents an ambition, an ambition of a decentralized spirit to devour traditional centralized commerce.
According to the above definition, Bitcoin should be the earliest blockchain Defi project, which is more than 10 years away from today, but the new Defi concept that people are talking about now does not include BTC. MakerDao is the big brother in the current landscape, accounting for More than 80% of the proportion. Maker is a project in October 2017. Starting from this project, the new Defi project has been developed for nearly 2 years.
In more than 2 years, there are many existing projects that have been refurbished, but there are not many real newborns. The whole is divided into 3 categories, stable currency, lending application and decentralized exchange. These three categories have centralized In this way, USDT is relative to DAI, the financing of centralized exchanges is relative to Compound, and Binance is relative to dydx. The difference between the two categories is nothing more than the difference between decentralized and centralized services, anti-censorship, openness and transparency, irreversible transactions, etc. The biggest difference is that decentralized projects hand over the trust of assets to code.
Therefore, a simple understanding of the Defi project now is that as long as the ownership of the asset is given to the owner by the code, it is in line with the concept of the new Defi project. In this general concept, Consensys counts and classifies 100+ projects that conform to the Defi concept. The big picture is
The specific classification is in this link:https://media.consensys.net/
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Mortgage assets of Defi
Unlike traditional finance, many businesses are based on credit, such as some small loans and credit loans. People evaluate your debt status, work status, marital status, etc. to decide whether to give you a loan. The blockchain is essentially used to implement this credit system, which allows individuals to have all their own status data. However, because the development of the blockchain is still very early, many data structures are not perfect, which makes the credit-based endorsement Business is basically impossible.
It can be seen that the current decentralized projects that revolve around the two major categories of DeFi (loans/stable coins) basically only rely on mortgage assets for endorsement. Usually, stable coins are obtained by over-mortgaging assets, and then the stable coins are used to meet the requirements. own needs. Because of the model, in the current blockchain, the needs that can be met are extremely simple and crude: short or long. To give a simple example, you get about 800 yuan of stable currency DAI by mortgaging 1,000 yuan worth of ETH. You use this DAI to continue to buy 800 yuan worth of ETH on the exchange. If ETH rises, You are equivalent to increased leverage. Conversely, it is also possible to go short.
For all current excess mortgage assets, the mortgage rate is basically required to be above 150%. The system has a certain liquidity requirement for mortgage assets, so a large number of Defi projects use ETH as collateral. Some projects have tried some BAT, REP, etc. Tokens are used as collateral, but the liquidity of these Tokens is far from meeting the requirements, which brings a very large hidden risk to the system. Another point, from the current statistical data, the current average over-collateralization ratio is 400%+, which reveals from the side that asset holders are much more cautious about the cryptocurrency market than the traditional financial market. This may have something to do with the current target users of mortgage lending, which are a large number of institutions.
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Arbitrage logic of Defi
Due to the lack of usage scenarios for Token, a large number of loaned Tokens (such as DAI) are basically returned to transactions. First, in order to maintain/increase value, large currency holding institutions will mortgage assets to borrow money to obtain income (annual 20%+), these assets flow into the hands of borrowers, and borrowers obtain their own risk returns by shorting or longing. The two are mutually beneficial, so the key to the establishment of the arbitrage logic in Defi is that the operator can make better judgments and make profits in the market. On the contrary, the arbitrage logic only exists. After all, leverage is added in the hugely volatile cryptocurrency market , is not a very sensible thing to do.
Another kind of arbitrage is the brick-moving arbitrage between exchanges. In theory, as long as there is arbitrage space between exchanges, the brick-moving robot will fill in the difference in a short time. But don't miss the staged arbitrage space that appears in the decentralized mechanism and the centralized mechanism, or bug arbitrage space. For example, DAI is theoretically 1:1 anchored to the US dollar, but because of the anchoring mechanism, there will always be a situation of 1.01 or 0.99. There will be special robots that will use the anchoring bug for arbitrage. I have learned about the Bitshares system. People should know this very deeply.
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Defi future
Judging from the current development time of Defi, the development time is too short, and there is no real time history. It can only be said to be the history of concept formation or cognition formation history. According to different definitions, the earliest Defi application is Bitcoin, which can be Dating back to 2008, the renovated Defi concept can be simply understood as a change in the ownership relationship of assets.
The new map has begun to expand. We have seen that 100+ Defi projects have begun to be classified, and it is expected that the number will expand to more than 500 by the end of 2019. The whole Defi will be more and more inclined to realize more financial services on the basis of personal control assets, and at the same time, more Defi projects in the vertical field will begin to appear (such as Compound, which specializes in stable currency interest-generating services such as DAI and USDC, and specializes in Staking assets ABS-based Stafi), the large and comprehensive Defi underlying architecture has begun to take shape (such as 0x, MakerDao, etc.), but these are still not perfect, and opportunities on this track still exist. Subsequent new projects may have new forms. Most projects are likely to be built on the existing public chain architecture. For example, Ethereum, Polkadot Substrate or CosmosSDK all provide relatively simple development kits, which can be very good. Help with initial project development.
In addition, regarding the richness of mortgage assets, some projects will gradually solve this problem, allowing assets with high market value such as BTC and EOS to be used as collateral to lend a certain value of equivalent Token. Similarly, new types of assets will also appear, such as Staking assets, which are inherently asset securitized and endorsed by the PoS public chain, which can have more flexible strategies as collateral.
Similarly, new types of regulation will also emerge. In the face of the financial industry that is related to people's livelihood, decentralization may bring new opportunities and unpredictable risks. Especially when decentralized services and centralized services are mixed, the financial risk will be greater. I always believe that although supervision will be late, it will never be missing.
Of course, if you are a practitioner, the blockchain is never short of opportunities. Sometimes there are so many opportunities that you don’t know how to make a choice. There are many opportunities in the Defi field. It depends on how you choose the entry point. In the large market segment, the popularity of DeFi, the development of underlying technology, and the emergence of new businesses may have an impact on the existing system. Among them, there are many things that can be interesting.
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