Guosheng Blockchain: Does the rapid development of DeFi drive the demand for ETH?

Editor's Note: This article comes from

Jishi Communication (ID: SJJ_Telecom)

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Risk warning: Uncertainty in regulatory policies, blockchain infrastructure development is not up to expectations.

The rapid development of the DeFi industry has not driven the real demand for ETH, and the deadlock of the Ethereum ecological structure remains to be resolved. According to the statistics of DappTotal, as of July 26, the total value of tokens locked in the form of pledge and other forms of DeFi projects in various chains was 3.68 billion US dollars, an increase of 951 million US dollars within 7 days, with a growth rate of 34.9%. Among them, Ethereum-based DeFi projects are mainstream players in the industry, and the total locked-up volume of the three Ethereum-based DeFi projects, including MakerDAO, Aave, and Compound, exceeds 50% of the total locked-up value in the market. However, for a long time, the price of ETH has not been as amazing as various DeFi project tokens. This is because the collateral of DeFi projects on Ethereum has begun to rely less and less on ETH, making popular DeFi projects and the real demand for ETH There is a decoupling. Obviously ETH is not a necessary collateral option, and with the vigorous development of the DeFi market, more and more tokens have become native assets. In order to change this embarrassing ecological situation, in addition to continuing to promote Ethereum 2.0, the founder of Ethereum, Vitalik, recently proposed the EIP-1559 plan-adjusting the Ethereum fee to the basic fee (BASEFEE) and tip (GAS_PREMIUM) structure, and the BASEFEE part of each transaction of the platform project is calculated in ETH and will be destroyed. The core of this solution is to reduce the ETH stock and enhance the demand for ETH, (because before EIP-1559, technically, the transaction fee does not have to be paid in ETH, but any token (such as a stable currency) can be used to pay the transaction fee). In this way, Ethereum hopes to regulate the market in a better way between the demand for ETH and the development of platform ecological projects. In the Ethereum ecology, there has been a game phenomenon between the Ethereum platform and the project side. We believe that in the game between the development of ecological projects and the demand for ETH, there are still risks of "forking" and system security. The EIP-1559 scheme may lead to the idea of ​​"forking" (or choose another platform) for some DeFi projects with strong resources. At the same time, the lower ETH price and the conversion of the PoS mechanism will inevitably bring external security risks to the system. After all, from From an economic point of view, the price of ETH is a security barrier for the ecological value of its platform. Ethereum, and even all blockchain token projects cannot avoid an embarrassing fact - a self-consistent platform ecological economic model. Whether the demand for public chains/tokens can truly evolve into user needs for project services is a market obstacle that the entire industry cannot bypass.

Last week’s market review: Chainext CSI 100 rose by 9.76%, and the basic chain performed best in the segmented sectors. From the perspective of subdivided sectors, the basic chain and AI are better than the average level of Chainext CSI 100, 24.07% and 14.68%; payment transactions, Internet of Things & traceability, social entertainment, business finance, basic enhancement, storage & computing, pure currency Underperformed the Chainext CSI 100 average at 7.24%, -1.66%, 3.07%, -0.75%, -3.90%, -2.50%, 8.29%.

Risk warning: Uncertainty in regulatory policies, blockchain infrastructure development is not up to expectations.

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1. Has the rapid development of DeFi boosted the demand for ETH?

The China Securities Regulatory Commission agrees to carry out blockchain construction work in regional equity markets. According to the Securities Daily, the Beijing Local Financial Supervision and Administration Bureau reported on July 21 that on July 7, the China Securities Regulatory Commission issued the "About the Principles of Approving the Development of Blocks in 5 Regional Equity Markets in Beijing, Shanghai, Jiangsu, Zhejiang, and Shenzhen" "Letter on Chain Construction Work", in principle, agreed to Beijing, Shanghai, Zhejiang, Jiangsu, Shenzhen and other regional equity markets to participate in the pilot work of blockchain construction. In November 2017, Beijing Equity Exchange, Shenzhen Stock Exchange and other regional equity market operators jointly launched the regional equity market intermediary agency credit chain, and strive to build a unified standard and cannot be tampered with. The letter block chain is the first block chain application project officially launched in the industry. This work letter will further encourage and promote the pace of regional equity market in-depth blockchain infrastructure construction. The global financial technology field has already begun to explore blockchain applications. As early as 2016, Australia began to evaluate the use of blockchain technology to develop its next-generation clearing and settlement system. At the end of 2017, a solution for migrating the clearing and settlement system to blockchain technology was formulated. SDX is a subsidiary of the Swiss Stock Exchange. SDX's goal is to build a digital asset exchange based on blockchain technology to trade new types of assets that will not conflict with the types of assets traded by its parent company. Globally, the application of blockchain in the field of financial technology continues to deepen, and a comprehensive application exploration has been carried out from system construction to asset transactions. The security, transparency and non-tamperable features of the blockchain will reconstruct the cost and business flexibility of the financial system. Trust is an important core factor of the financial service system, and the flexibility of asset circulation and transactions is also the goal pursued by financial services. In the process of traditional financial institutions attaching importance to and continuously deploying financial technology to obtain future industry development, blockchain technology must not be ignored. Fintech with blockchain as an important technology will bring a shorter chain of trust to the financial service system, reshape the credit of participating nodes, and bring more flexible and brand-new financial business logic. This point has become the consensus of the industry. Whether it is a financial giant, an Internet giant or a government agency, they all attach great importance to the new business logic opened up by new financial technology. Financial technology applications such as digital currency will profoundly affect the future financial services industry. Domestic companies such as Zheshang Bank, Yijian Stock, and JD Digits are also actively exploring application scenarios in the field of financial technology/financial services.

2. News related to the governments of various countries: the central bank issued regulations related to blockchain finance, and South Korea will discuss cryptocurrency-related tax bills

China: The central bank promotes the standardized application of blockchain technology in the financial field, and various ministries of the country strengthen the protection of new rights and interests. On the 22nd, the central bank issued the "Notice on Promoting the Application of Blockchain Technology Specifications" and the "Rules for Evaluation of Financial Application of Blockchain Technology", requiring the financial industry and institutions to establish and improve risk prevention mechanisms for blockchain technology applications. On the 22nd, the Supreme People's Court and the National Development and Reform Commission issued the "Opinions on Providing Judicial Services and Guarantees for Accelerating the Improvement of the Socialist Market Economic System in the New Era" to strengthen the protection of new rights and interests such as digital currencies. On the 24th, seventeen departments including the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Finance issued several opinions on improving the system for supporting the development of small and medium-sized enterprises, and supporting small and medium-sized enterprises to develop next-generation information technologies such as blockchain.

United States: The U.S. House of Representatives added two blockchain amendments to the annual defense spending bill; U.S. regulators allow banks with federal government licenses to provide cryptocurrency custody. On the 21st, the House of Representatives added two blockchain-related amendments to the National Defense Authorization Act, added distributed ledger technology (DLT) to the definition of emerging technologies, and required the Deputy Secretary of Defense Research and Engineering Defense to complete a review. A study of the potential of DLT for defense purposes, reporting the findings to Congress. On the 23rd, the Office of the Comptroller of the Currency announced that it will allow banks licensed by the U.S. federal government to conduct cryptocurrency custody business. The license applies to nationwide banks and federal savings institutions of all sizes.

South Korea: South Korea will impose a 20% capital gains tax on digital currency transactions with an annual transaction volume of more than 250 won. Earlier, South Korea's National Assembly discussed a crypto-related tax bill aimed at imposing capital gains taxes on cryptocurrencies. Lawmakers say the capital gains tax on cryptocurrencies could be raised to 20%. Proposed amendments to existing laws also plan to classify cryptocurrencies as “commodities,” rather than currencies. Lawmakers have determined that a virtual asset can be considered an electronic certificate of economic value, can be traded electronically, and can be considered an asset when the purpose of the transaction is for sale. Additionally, for those who do not reside in South Korea, capital gains tax will be withheld on their cryptocurrency transactions.

3. Industry chain-related developments: BTC mining revenue increased by 14.4% month-on-month

Last week, BTC added 2.29 million transactions, a month-on-month increase of 3.2%; ETH added 8.01 million transactions, a month-on-month increase of 4.5%.

4. Last week’s market review: Chainext CSI 100 rose by 9.76%, and the basic chain performed best in the segment

Regulatory policy uncertainty. At present, the blockchain is in the early stage of development, and there are certain uncertainties in the supervision of blockchain technology, project financing and tokens in various countries around the world, so there are uncertainties in the development of industry company projects.

Blockchain infrastructure development falls short of expectations. Blockchain is the core technology to solve supply chain finance and digital identity. At present, blockchain infrastructure cannot support high-performance network deployment. The degree of decentralization and security will restrict high performance. Blockchain infrastructure exists The risk of developing less than expected.