The story of the application layer is hard to tell. Behind the public chain’s collective betting on DeFi, is it a helpless move?
Text | Edited by Nancy | Produced by Bi Tongtong | PANews
Before this year, compared with the relatively large CeFi market, DeFi has not yet gained a firm foothold. In just over half a year, after the baptism of "312", DeFi has sprung up suddenly. At present, in addition to the 5.6 times increase in locked positions compared with the beginning of the year, the total market value has also increased by nearly 4.2 times compared with the beginning of the year. DeFi is showing strong vitality.
Behind the explosive growth is the crazy participation in the DeFi market. According to data from Dune Analytics, as of July, the total number of DeFi users was approximately 238,400, an increase of more than 23% from the beginning of June. Indeed, how can the lucrative income of dozens of times make people not tempted? "DeFi has ignited the passion of too many people like fireworks. The current DeFi is exactly the same as the original ICO. Your familiarity with DeFi will determine whether you will be left behind." A DeFi player told PANews.
In the growing ecology, Ethereum, which focuses on the "DeFi ecology", is highly sought after. Especially in the post-halving period when there is a lack of "good themes", the outbreak of DeFi has made Ethereum, which has been silent for a long time, return strongly. According to OKEx data, the current price of Ethereum is $318.15, an increase of nearly 2,400% from the beginning of the year.
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Collectively enter DeFi, follow the trend or survive against the trend?
From the TPS competition, to the DApp ecological competition, to the DeFi competition, the competition and exploration of the public chain has never stopped.
Once upon a time, TPS (transactions per second) was an important indicator of the high performance of major public chains. In this competitive track, many public chains are keen to flaunt high TPS values, and one million TPS has even become the standard configuration of every public chain.
As the market returns to rationality in its pursuit of TPS, DApp has become one of the important indicators for the new round of competition in the public chain. Especially at the beginning of 2019, the DApp applications of major public chains flourished and once entered a white-hot stage. However, the sluggish daily activity and popularity put DApp in an embarrassing situation. In just a few months, DApp has become more and more deserted from the bustle of flowers and flowers.
As a result, the popularity of public chains has plummeted, and many public chains have even faded out of people's sight. "DeFi may help public chains find their own application scenarios and value." Conflux researcher Li Chenxing believes. Although the total assets of DeFi are only equivalent to 1.5% of the entire encrypted assets, the great vitality contained in it is enough to make the public chains "heartbeat". At present, thousands of DeFi projects have appeared on the market, covering almost all fields such as lending, financial derivatives, prediction markets, and insurance in the traditional financial industry.
The public chain's competition in DeFi is calm on the surface, but in fact it is undercurrents. We turn our attention to foreign countries. EOS, which was once compared with Ethereum, has a lackluster number and scale of DeFi projects in its ecology. According to DApp.com, judging from the transaction volume in the past month, among the top 30 financial DApp ecosystems, only 4 EOS DeFi projects are on the list. However, high performance and strong scalability also give EOS a certain imagination. The current EOS DeFi ecosystem includes DeFibox, Pizza, EOSDT, DeFis, eosfinex, TP Swap, etc., mainly involving stable coins, loans, wallets, decentralized exchanges, etc.;
The star public chain project Polkadot has launched 11 DeFi projects, including Rio Chain, MANTRA DAO, Polkswap, Stafi, Akropolis, etc., involving mortgage loans, stable coins, etc.;
In January of this year, Cosmos launched its first DeFi project, Kava, with a pledged asset scale of approximately US$80 million in less than a week after its launch. In July, Cosmos, Polkadot and the stable currency project Terra jointly developed Anchor, a new DeFi savings product;
The high-performance public chain platform Solana has also begun to deploy in the DeFi ecosystem. In addition to cooperating with the decentralized oracle machine Chainlink and the decentralized exchange DDEX, the cryptocurrency exchange FTX has also announced that it will launch a Solana-based decentralized network in the next week or two. Exchange (DEX) Serum.
Turning our attention back to China, Tron, which is closely following the hot spots, recently launched three major DeFi platforms: JUST Lend, a lending platform, JUST Swap, a decentralized trading platform, and JUST BTC, the TRON version of wBTC. In addition, there are TRON DeFi projects developed by community developers themselves, such as OKS, which has been making a lot of noise recently.
Bytom also launched the DeFi protocol cluster MOV, which is a decentralized value exchange ecosystem with products including loans, stable coins, synthetic assets, derivatives, etc. In June this year, MOV launched superconducting exchange, which will introduce innovative mechanisms such as oracle machines and grid transactions;
Ontology’s deployment in DeFi includes the issuance of the stablecoin PAX based on the Ontology blockchain platform, cooperation with DeFi application providers such as SALT Lending and LendChain, and the provision of DID solutions for DeFi projects of Ethereum and Polkadot. The ecology mainly involves stablecoins, insurance, and lending , payment and other fields.
In addition to the public chains mentioned above, there are many other public chains that are also in progress or will soon carry out related layouts. However, due to the short participation time and other reasons, compared with the current public chains, there are very few DeFi projects that can be sold. "Under the same relatively stable situation, too many people focus on Ethereum, which makes the ecological construction of the public chain itself very difficult." He Shengjun pointed out.
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How to accommodate diverse financial needs?
Compared with Ethereum, whether it is building a DApp ecosystem or DeFi products, the speed of other competing public chains is much slower.
Source: DeBank
Source: DeBank
In addition, Messari, a cryptocurrency data analysis platform, pointed out that attracted by DeFi and income farming, the number of active addresses on Ethereum exceeded 500,000.
From the current point of view, the Ethereum DeFi ecosystem includes lending, savings, stable coins, DEX, wallets, infrastructure, analysis tools and other fields, and has achieved good results. Needless to say, the buzz belongs to Ethereum.
However, the participation of major public chains will also make DeFi more diverse. As we all know, the size of the financial market and the diversity of financial products can be a good measure of the degree of financial development. At the same time, if DeFi wants to become the "base" of open finance, it must also carry diverse financial needs, which is also a problem that the underlying public chain has to face.
In this regard, He Shengjun believes that the DeFi architecture is based on the blockchain, so the satisfaction of diverse financial needs cannot be separated from the continuous improvement and evolution of the underlying technology. First of all, for the loan business, the performance of the public chain may not be a problem that needs special attention, but for the transaction business, especially the transaction business of the order book matching on the chain, the performance problem must be solved. For example, the successful launch of the magnetic exchange business in MOV is based on the successful research and development of Vapor, a high-performance side chain with over 10,000 TPS.
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DeFi enters "growing pains period"
Although DeFi seems to have entered a period of excitement, and the outbreak is just around the corner, it is planting an "uncertain time bomb".
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Source: OKLink
Data tracked by Sparkpool mining pool shows that the daily revenue of Ethereum miners has soared by more than 60% in a month, outpacing the increase in ETH price during the same period. Meanwhile, based on a 30-day rolling average, ethereum miners earned nearly 17 percent of their total income from transaction fees in June, an all-time high, according to The Block analysis.
Even Vitalik Buterin, the founder of Ethereum, has repeatedly stated in public that scalability is still a big bottleneck in Ethereum, because the Ethereum blockchain is almost full. As utilization increases, Ethereum’s transaction costs increase, making potential enterprise users hesitant to choose the Ethereum blockchain.
In fact, these problems of Ethereum have been around for a long time, but the prosperity of DeFi has further amplified them. For DeFi, this will inevitably seriously affect the user experience, and the high transaction fee will also "drive away" real users.
The rapid growth of users and transaction volume in the DeFi market is due to the "liquidity mining" boom triggered by the Ethereum-based DeFi project Compound, which has largely promoted the rapid growth of users and transaction volume in the DeFi market. This has led more and more DeFi protocols to use "liquidity mining" as the best way to obtain liquidity, but at the same time, the increasingly strong speculative atmosphere is also hurting DeFi. For example, the EOS version of the first liquid mining DFS, the project has attracted much attention as soon as it was launched. Within two hours of starting mining, the transaction volume reached 1.4 million EOS. However, due to mechanism design problems, DFS was frantically exploited by "scientists" and speculators, and the official team had to revise the rules three times a day.
In the eyes of speculators and wool parties, DeFi has become an arbitrage tool. But in the long run, the healthy development of DeFi is inseparable from real usage needs. "The essence of most liquidity mining solutions at present is that the project party subsidizes the user's usage behavior by distributing project tokens. As long as the income of this subsidy is greater than the user's mining cost, it will definitely attract speculators to participate Mining. The composition of the liquid mining group can be roughly divided into three categories, namely, the original users of the project, pure speculators, and "swingers" in between. Whether the original users have liquid mining or not, they will Using the project, liquidity mining is just an additional income for them; pure speculators only come for profit, once the mining income is lower than their requirements, they will resolutely withdraw; swingers are between the above two Among those who come here for mining interests, they also have potential needs to use the project. Therefore, through the understanding of the project or the cultivation of usage habits, swayers may be converted into real users. The purpose of liquidity mining is to attract swayers as much as possible people and turn them into real users," He Shengjun told PANews.
At the same time, he believes that pure speculators should try to avoid their participation in mining, but there is no need to pursue absolute prohibition, because absolute prohibition often means that the mining income is not attractive, and it is difficult to attract swingers, and there is no way to convert swingers talk about. The main method to control the proportion of pure speculators is to set the ratio range of mining revenue to mining cost, and try to avoid low-cost or even zero-cost mining situations. The failure of DFS mining on EOS is mainly because users can trade their own created air coins for transaction mining. The cost is low handling fees, and the income can reach more than 10% of the daily cost, which is seriously unequal in cost and benefit. In addition, the innovative design of the model can also be used to identify the real usage behavior as much as possible. For example, MOV has tried to use the tool of Coinsky to ensure the authenticity of the transaction as much as possible. As for the retention and conversion of real users, the project party needs to polish its own products, and have its own characteristics and advantages compared with competing products.
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The rushing DeFi may be "sniped" by supervision and security
How to balance innovation and security is an old question.
At present, while DeFi innovations continue, security issues are increasingly emerging, including the security of smart contracts and the volatility of collateral prices based on over-collateralization. "Many people underestimate the risk of smart contracts. Its interest rate is much higher than that of traditional bank accounts, which means that DeFi products are much more risky and the chance of 'collapse' is much higher." Vitalik believes .
Cao Yinze, managing director of the Digital Renaissance Foundation, pointed out that decentralized management is the biggest threat facing DeFi. Once users’ interests are lost, they cannot get corresponding compensation. Success is also a block, and failure is also a block. In the past three months, there have been three major security incidents in DeFi: On April 18, Uniswap was stolen with $340,000; on April 19, Lendf.me was stolen with $25 million, but the team is negotiating with hackers Afterwards, the funds were "luckily" returned; on June 28, Balancer suffered a flash loan attack and lost nearly $450,000.
For a while, DeFi became a "cash machine" for hackers. For DeFi, before its security meets the threshold of traditional finance, it is bound to fall into the quagmire of trust. At that time, how will DeFi, which focuses on "revolutionizing the life of traditional finance", compete with traditional finance?
In this regard, He Shengjun told PANews that the security issue is the lifeline of financial business, so it is very important. The security issues of the DeFi platform can be viewed from two levels. The first is the system level. One of the important reasons for the frequent occurrence of security issues in DeFi projects on Ethereum is that DeFi on Ethereum has adopted a large number of Lego models. There is a lack of unified design and coordination among them. Secondly, from the perspective of the project, the project party should raise security awareness, ensure investment in security, and formulate a security response mechanism. Financial applications should be fully tested, and strategies such as steady iteration can be adopted for the launch and update of financial products.
In addition, because DeFi has broken through territorial regulation to a certain extent, and even surpassed national and inter-regional jurisdictions, it will have to face the regulatory policies of different countries. For some countries with strict regulations, how will DeFi respond? Obviously, potential regulatory risk will be the sword of Damocles hanging over DeFi.
"Facing up to supervision is a way for the project party to protect itself. Only by developing within the scope permitted by the supervision can the project be stable and long-term. Based on the needs of public management, the establishment of a registration and filing system for blockchain technology providers continues the supervision of Internet governance. For example, Bytom took the lead in realizing the information filing of Bystack in China, and participated in the formulation of blockchain standards of the Ministry of Industry and Information Technology and Zhejiang Province. In addition, the regulatory sandbox is also applicable to the governance of blockchain financial supervision. In large cases, regulatory sandboxes have become an important way to explore blockchain regulatory governance. Therefore, DeFi project parties can actively communicate with regulators to discuss issues such as the scope of sandboxes and business redlines." He Shengjun said.
