After the "Summer of DeFi" carnival, what can be left behind

Editor's Note: This article comes fromCointelegraph Chinese (ID: CointelegraphChina), Author: Geoffrey Ding, reproduced by Odaily with authorization.

Editor's Note: This article comes from

Cointelegraph Chinese (ID: CointelegraphChina)

, Author: Geoffrey Ding, reproduced by Odaily with authorization.

Recently, a variety show called "Summer of the Band" became popular on the Internet. The first one to go out of the circle was a band called "Wu Tiaoren". their favourites.

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Breaking the Circle - Technology Vision and Wealth Myth

The rise of DEFI is a typical "ladder cloud vertical" model. Compound, Balancer, AMPL, Aave, YFI, WNXM emerge one after another, and the wealth code is constantly updated.

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Change - the logic of industry wealth changes quietly

So the whole profit (shou) benefit (ge) chain has been clear. The project party designed a set of operation mechanism on the smart contract for farmers to mine, dig out their various tokens and list them on Uniswap, and only need a little start-up capital to achieve "listing"; so there will be a second batch People "rush" these tokens on Uniswap according to the publicity of the community (note the AMM trading mechanism of Uniswap, the price will move along that pricing function). As a result, the higher prices further stimulated the vitality of the community.

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wait - where is that gray rhino

The collapse of YAM is an early warning. There is no guarantee that there will be no loopholes in the smart contract that locks hundreds of millions of dollars in assets, which will lead to the theft of tokens in the asset pool. You must know that the theft of Lendf.me did not take long. Here, the tokens locked between DEFI are interrelated. For example, users can borrow from the A fund pool and borrow from the B fund pool for mining. Of course, these are idling. Such repeated operations tie all projects such as loans, insurance, and aggregate income together tightly. Once a problem occurs in one of the projects in the chain, it will trigger a chain reaction.

Finally, the violent fluctuations of the market, especially ETH, will cause the outbreak of systemic risks and accelerate the formation of negative feedback loops. As a proper dollar-priced asset, Bitcoin has historically proven that the price is closely following the trend of the US stock market, so if the US stock market comes to an end, Bitcoin will inevitably be pulled down again. And once the market declines, the DEFI bubble will "burst itself without poking itself". There are still many possibilities for gray rhinos to appear. I believe that it is not that no one sees these dangers, but just firmly believes that "I run faster than others" when the bubble bursts.

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Overwatch - Future Token Trading Scenario

The most valuable part of this round of DEFI is the automated market maker (AMM) trading system, which realizes price discovery and trading in the form of joint curve deployment in smart contracts, which will change the current scenario of token exchange.

The original blockchain world adopts the trading mechanism of traditional stock exchanges, that is, the form of market maker + order book. Afterwards, many projects proposed smart contracts + traditional trading mechanisms, including on-chain/off-chain order books, loop matching, smart contract market makers, etc., but none of them deviated from the idea of ​​order matching transactions. After that, all the innovations of Bancor took the lead in igniting the new model of "man-machine trading" based on the constant product algorithm, and Uniswap lowered the threshold for listing coins and transaction costs on the basis of Bancor, and then ignited this round of DEFI.

However, AMM also requires a large amount of liquidity to provide users with a low-slip trading experience, which is one of the shortcomings of traditional trading mechanisms. However, with the iteration of the algorithm, the expansion of the capital pool and the expansion of layer 2, the trading experience of AMM will eventually exceed the traditional order book model, and break the monopoly of the digital asset trading market.

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DEFI+ programmable tokens are widely used

As of August 21, according to the data on DAppTotal, the total DEFI lock-up funds reached 6.27 billion US dollars, an increase of 32.45% in the past week. But in fact, because of the interconnected nature of the DeFi lending agreement and the aggregation income agreement, it is difficult for us to count their real capital growth and lock-up amount. But we only count value assets, and the ETH locked on the chain has reached more than 4.8 million, which is about 2 billion US dollars; DAI is less than 100 million US dollars; plus a small amount of locked positions such as EOS and BTC. Then the real lock-up funds may be as Damir Bandalo said on Twitter, "DeFi's real total lock-up value may only be 3.5 billion US dollars."

Just as funds idling in the commercial banking system do not produce actual utility, if the DEFI generation does not finally match the real economic scenario, it will not be able to maintain idling for a long time. So where is the bridge between DEFI and real scenarios? I think it is on the use and promotion of programmable tokens. Token development So far, most of the written generation, circulation and destruction rules are relatively simple, and there is no large-scale mapping of real-life assets for chaining. However, the certificates issued by smart contracts are highly programmable. In the future, the rules of financial derivatives, commodity attributes and ownership, and various assets can be expressed on the chain in the form of certificates. At that time, a series of DEFI transactions, mortgage lending, insurance, etc. can be truly connected with the real economy.

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