From mining, forks to aggregators, this article understands the evolution of DeFi
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Blue Fox Notes (ID: lanhubiji)
mining
, reprinted by Odaily with authorization.
After more than two years of dormancy, DeFi broke out in the summer of 2020. From mid-June to the present, only three months have passed, and the various intensive evolutions are dazzling. This is by far the most innovation-intensive phase in crypto history.
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mining
In the DeFi field, Synthetix is the initiator of liquidity mining.
Synthetix initially rewarded users with SNX tokens on Curve for providing liquidity to the sUSD pool. That is to say, on Curve, users who provide liquidity for the sUSD pool can get corresponding SNX rewards according to their proportions. Later, it also cooperated with renbtc and other project parties to carry out joint liquidity mining.
Why does Synthetix engage in liquidity mining? Because Synthetix is a protocol for generating and trading synthetic assets, if there is no liquidity, its synthetic assets are meaningless. Therefore, whether it is sUSD, sBTC, sETH, etc., it needs to have liquidity, and it needs someone to trade before it can develop.
How to guide liquidity is not enough to rely on its own internal system, and it is also a good way to guide it through other DEX platforms. This is a big reason why Synthetix has successfully driven its liquidity with the Curve platform.
Bitcoin is the ancestor of mining in the field of encryption.
When it comes to mining, Bitcoin must be inseparable. Bitcoin was the first token in the crypto space and the first cryptocurrency to introduce a mining mechanism.
Bitcoin introduces mining mechanism for the security of its network. Mining first solves the problems of bookkeeping rights and token incentives, and second solves the problem of security at the same time. This is a very clever game mechanism design. Participate in mining to get rewards. Mining is also the distribution mechanism of Bitcoin. Through the reward model of each block and the model of halving every four years, it realizes the utility of its value storage and value circulation, becoming the first successful Encrypted native tokens, becoming the real "digital gold".
Bitcoin mining introduces computation, and it also introduces energy. This gives Bitcoin intrinsic value. Today's DeFi mining often involves staking assets and then obtaining corresponding rewards. Why does DeFi no longer engage in this kind of PoW computing power mining? There are many reasons, but one of the reasons is that the PoW mechanism has helped the entire encryption field to complete the accumulation of the most basic native assets. Among them, the value of Bitcoin currently exceeds 200 billion U.S. dollars, and the value of Ethereum currently exceeds 40 billion U.S. dollars. Important and safest assets, they are all generated through the PoW mechanism, which is equivalent to completing the most important first step in the construction of encrypted asset Lego, which is the process from 0 to 1.
On this basis, PoS took advantage of the trend. Because of these native encrypted assets, many other assets have been derived on top of the native encrypted assets. Most of today's DeFi obtains the distribution of tokens through pledged assets. The reason why this can be done is because Bitcoin and Ethereum have paved the way for today's situation.
In the English discourse system, mining has become "Yield Farming", which has become the sowing and farming of income. In this discourse, funds are regarded as the seeds of crops, which are sown into different lands and then harvested. Behind it, it is because both the sowing and the land are ready.
Despite the successful experiment of Synthetix, the accumulation of Bitcoin, and the smart contract platform of Ethereum, the detonation point of the DeFi field comes from the liquidity mining of Compound and Balancer, which is also a natural result of industry accumulation.
COMP is Compound's governance token, an ERC20 token that allows holders to delegate tokens to others to vote. Any token holder can participate in the governance of Compound. As long as you have 1% of the entrusted tokens, you can initiate governance proposals, including adding new assets, changing the parameters or variables of various agreements such as interest rate models. COMP is not only a governance token, but also a token that captures its business value. All borrowers and lenders on Compound have the opportunity to receive a distribution of COMP tokens. The total amount of tokens allocated for mining is 4,229,949. 50% of the tokens are allocated to lenders and 50% to borrowers. The higher the price of COMP, the stronger the incentive for users to save and borrow money.
Blue Fox Notes has been paying attention to Balancer very early. Before it launched liquidity mining, its liquidity was less than 20 million US dollars. Today, Balancer’s liquidity exceeds 480 million US dollars. Balancer's liquidity token pool has an adjustable weight factor, through weight adjustment to achieve a fairer distribution of tokens.
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(Liquidity mining has pushed up the amount of locked assets on Balancer and completed its business cold start, DeFiPulse)
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Mining + Fork
YAM is the initiator of mining + fork.
When AMPL came out, there were a few imitators, but none of them made a splash in the crypto community. But YAM is different, it stirs up the entire encryption community.
Why is YAM so attractive?
YAM is also a fork of AMPL, only adding a few new features such as the reserve library. An important reason why YAM was able to detonate the community at the beginning was that it combined the AMPL+YFI mechanism. YAM is a variant of AMPL, but at the same time its distribution mechanism adopts the YFI model. In other words, YAM combines AMPL and YFI's most detonated community. Therefore, as soon as it appeared, it exploded with energy.
Sushiwap is the facilitator of this trend.
Sushiswap is a project that pushes the trend of forking + mining to the highest level. Because Sushiwap not only forked Uniswap, but also increased the token distribution mechanism for mining, and finally tried to draw salary from the bottom of the pot to take away Uniswap's liquidity. Thirteen token pools that participated in Sushiswap mining in the early stage, including USDT, USDC, DAI and other stable currency token pools, as well as mainstream DeFi token pools, are the pools with the highest liquidity on Uniswap.
There is a diminishing effect of fork + liquidity mining
Although various forks + liquidity mining projects emerge in endlessly, it is basically unsustainable if they are simply imitated. This can be seen from various "food swaps" that imitate Sushiswap, and the final result often leads to a death spiral.
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(Plunge costing majority pool 1 and pool 2 mining participants, DeFiPulse)
Mining + fork + micro-innovation
With the development of time, there will be more and more micro-innovations in liquidity mining. These projects may not be large-scale projects, but because of their small changes, there may be some new developments in constant iterations. The pickle (Pickle) started to have some small ideas, showing something different.
Recently, Pickle has continuously launched the aggregation mining of canned cucumbers (pJars), trying to give value to PICKLE tokens, instead of being unable to retain liquidity under the crude mining distribution mechanism like the previous "food swap". Pickle's canned cucumber is similar to YFI's yVault. There are currently 4 aggregated mining pools, pJar0.69a\b\c and pJar0, with locked assets of more than 70 million US dollars. However, since the contract is not involved, participation must be cautious.
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(Pickle tries to add value to the protocol through more things, so as to retain liquidity)
In addition to Pickle, Safe’s combination of purchasing insurance and mining is also a new attempt. However, this has also led to some side effects. Since many users purchase insurance for mining, users who normally want to purchase insurance cannot purchase insurance at a certain time. This also shows that the insurance industry urgently needs new practitioners.
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Integration of DeFi+NFT
Recently, there is a MEME token. When Blue Fox Notes was written, its market value was more than 29 million US dollars, and there were a total of 28,000 MEME tokens. The interesting thing about this project is that it combines NFT and DeFi.
Currently Meme has two mining pools, one is to deposit ETH/MEME LP tokens on Uniswap to mine NFTs on LP Genesis. One is to deposit MEME tokens to mine NFTs on Genesis.
In the Genesis Pool, after each MEME token is deposited into the Genesis Pool, a MEME token can earn 1 pineapple point per day, up to 5 points, and when there are enough pineapple points, they can be exchanged for NFT.
When users earn enough pineapple points, they can choose their favorite NFT for exchange.
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(NFT on Meme, Van Gogh)
The scalability of Meme is that it can become a platform for generating various NFTs. At present, its NFT mainly focuses on some Memes in the encryption field, such as the founder of Ethereum, the founder of YFI, the founder of Chinalink, etc. In the future, it can continue to expand to NFT in more fields, resulting in more mining and more NFT transactions.
(NFT on Meme is sold on Opensea)
As long as the NFT space lasts, it has a chance to survive. Of course, if the NFT market cools, it will suffer as well. Relatively speaking, this is a more speculative market.
In addition, Aavegotchi is also a project that combines NFT+DeFi. It generates NFT collectibles by staking defi assets. The attributes of its NFT depend on its value and rarity in the Aavegotchi universe, such as different mortgage interests, traits, and wearable equipment. Today's Aavegotchi is like an encrypted cat or Axie infinity with DeFi mortgage assets. This makes NFT not only have collection value, but also have intrinsic underlying asset value.
Each Aavegotchi NFT manages an escrow contract address, which holds the ERC20 collateral supported by Aave, which is atoken. Atoken is generated through Aave's lending pool and can generate income. The atoken in the Aavegotchi hosting address will increase over time.
The basic advantages of the underlying protocol
Forking and mining are arts, not Tao. Due to the composability of DeFi, the previously constructed underlying protocol becomes the basis of the new protocol, which will further strengthen the advantages of the underlying protocol.
As we have seen, Uniswap not only survived the attack of Sushiswap, but also promoted its growth. One reason for this is that it has become a Lego building block for other mining projects to gain liquidity. In addition to DEX, lending agreements, synthetic asset agreements, etc. will gradually benefit from the great development of DeFi. Like Nexus Mutual also benefited from the aggregation agreement and the recent wave of mining.
Therefore, the underlying protocol is the basic Lego building blocks, they are not replaced, but are continuously enhanced with forking + mining + aggregation.
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Aggregator Possibilities
In the internet age, aggregators capture the vast majority of value. Google aggregates the content of various websites, Facebook aggregates social relationships and content, Amazon aggregates products and transactions, and Airbnb aggregates guest rooms... These technology giants have subverted traditional industries and built a near-monopoly position.
Why do these tech giants form a near-monopoly position? As more and more users, content, and products are aggregated, the cost will not increase, but will only be diluted, and a network effect will be formed on this basis. This is a huge moat, and it turns out that winners take all. Will there be an aggregation effect similar to the Internet era in the DeFi field? Don't know yet, but DeFi aggregators are already showing power.
Aggregators are ruthless yield machines.
Aggregators take advantage of the composability and permissionlessness of DeFi, constantly looking for better income strategies to help users increase their income. Among them, one of the most typical cases is YFI's yvaut, which is an aggregator that increases mining revenue.
Aggregators are the distribution hub for DeFi funds.
Whether it is liquidity mining, staking, lending, or AMM of DEX, it is essentially depositing tokens into the storage pool and then earning income. This means that whoever earns more is likely to siphon more tokens. At present, there are lending, DEX, derivatives agreements and aggregators that attract tokens, and finally, staking of various tokens themselves. These agreements seem to be in different fields, but in essence, they have a certain degree of competition. The underlying protocol is the basis for generating revenue, and the aggregator is responsible for the optimization of revenue, and will eventually reach an equilibrium. From the perspective of user operations, aggregators are more in line with their interests, more flexible, and more profitable.
Of course, the aggregator also has higher risks, because the aggregator involves more agreements, and once one of the agreements is at risk, the high returns outweigh the losses. In the early days, aggregators were more suitable for users with a higher appetite for risk.
The aggregator is the entrance to upgrade the DeFi experience.
DeFi is in a very niche stage, and the important reason is that the current user threshold is very high. For most users, to use DeFi, they need to face the wallet registration gate, wallet key management gate, wallet and protocol interaction gate, and then involve various more complex issues such as lending, trading, mining, synthetic assets, etc. Interaction, various arbitrage strategies, and mining strategies are too difficult for ordinary users.
Not only is the user experience threshold high, but DeFi projects are developing so fast that even core DeFi users can hardly keep up with this pace, let alone ordinary users. For example, in the recent liquidity mining project, fresh "fruits and vegetables" come out every day, and ordinary users have no way to start and don't know how to choose.
Not only is the threshold of use and selection high, but the threshold of fees is also high. During the peak period of mining, the cost of hundreds of dollars at every turn is unbearable for ordinary users.
Finally, what is even more frightening for ordinary users is that they do not know the potential risks, which may lead to major losses.
All in all, the DeFi field is currently on the eve of rapid development, and there is a need for a DeFi aggregator that can be adopted by both ordinary users and experienced users. It can give users direction and make it easier for users to participate in DeFi without worrying about complexity Operation, high cost, selection, safety and many other issues.
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The battle between DeFi and the public chain
ETH 2.0 will further strengthen its advantages
With the arrival of ETH2.0, the congestion problem on Ethereum will be alleviated to a certain extent, which will further consolidate its advantages due to its inherent ecological advantages.
At present, there are already more than ten DeFi projects on Polkadot, and the overall ecological projects are about 200, and the basic construction of the ecology has been initially completed. Cosmos is also constantly developing, and some DeFi trading projects and stable currency projects are also under development. Solana has also begun to build DEXs, such as Serum. If it can prove itself, there are many opportunities for expansion in the future. In addition, various other public chains will also develop their own DeFi and realize cross-chain asset circulation on this basis.
Therefore, there will be some good projects in the field of cross-chain assets in the future.
Ultimately, with the development of cross-chain assets, Ethereum’s DeFi ecosystem will continue to strengthen, and other public chains will also have the opportunity to gain a certain market size. Since the overall DeFi market size is still small, these public chains have the opportunity to grow DeFi together. The more likely situation in the future is to form a multi-chain coexistence DeFi ecosystem centered on Ethereum.Ethereum's Layer 2 track》。
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