When will the DeFi super cycle come?

, and is likely to be composed of several small cycles, in the continuous

DeFi for retail investors: DeFi + NFTs

Institutional DeFi: AI Lego, STOs, and dPrime

In this article, we mainly introduce the case of the broken DeFi super cycle."secondary title"The power of DeFi

Put simply, DeFi is Andreessen"In this case, business would"and"decentralized"Digitizing

and

decentralized": both in the context of capital markets, and in all types of business, including subsets thereof such as e-commerce."In the past ten years from 2010 to 2020, the software layer of the Internet was able to create (mint), store, move, borrow, digitally scarce, and programmable value with the smallest intermediary environment. Centralized exchanges and wallets (aka CeFi) are the minimal intermediary layer that not only improves accessibility and abstracts technically complex management and custody, but most importantly acts as a gateway for new requirements to enter the system (use for distribution)."Unlike the current financial system, DeFi is a bottom-up, open-source, permissionless,"super competitive

environment, it seeks a balance between yield and efficiency. On the face of it, this may appear to be a paradox, and is known as"The DeFi Paradox". However, I think this is only true if the ecosystem is not fundamentally growing: bringing in more collateral (supply) and more liquidity (demand) and closing the loop.

When those two things happen, like we saw with ICOs in 2017, a

. If we look back at that period it can be well understood that this was triggered by joint innovation:

ERC20 crowdfunding mechanism (supply) + CEX centralized encryption exchange (demand):

Now it is necessary to say up front that people like to pit CeFi such as CEX (the lowest mediation layer mentioned above) against DeFi. But in fact, if we want to grow the capital and usage of the system, they are synergistic with each other: since DeFi needs CeFi, and CeFi needs DeFi, both should be regarded as different parts of the same thing. The only difference from CeFi is how DeFi deals with the existing financial system and relevant regulatory agencies. This is where most of the new demand comes from, and where users are happy to pay for bundled services and take legal responsibility if things go wrong. This last point is very important to most people.

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Diagram of Supercycle VS. Broken Cycle

First, it's worth mentioning that a lot of people think the 'super cycle' is a bad thing at all. But historically, when an open capital market tries to price this innovation, it always ends up overvaluing it. This eventually led to a sharp correction, which in turn killed the hype."As an open permissionless capital market, this seems to be an intrinsic part of crypto innovation. This is how innovation in this space is financed; albeit in a seemingly capital inefficient way, it works, or at least is the best we have right now."Typically, historically, supercycles have been triggered by combinations of the innovations described above; there may be old ones or new ones, but often they are put together in a new and timely way."In the first half of this year, we all thought that there would be a major DeFi super cycle and bull market in 2020, but somehow it stalled; this should be regarded as a"Phenomenon. It took me a while to connect the dots, but if you think along the logic above, it's easy to see why, and assume what the DeFi super cycle requires

appropriate

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exist"farmed "So how did it start and why is it incomplete?

Innovation: Stablecoin (supply) + Yield Generating Protocol (supply)"exist"In short, it effectively creates a new form of supply without the new demand needed to maintain it. And because it’s not tied to any form of sustainable income, it just creates an artificial loop of earnings. In the absence of any new liquidity entering the system, this aggressive form of user acquisition (when considered from a marketing perspective) proved to be a protracted

chicken game

, based on typical over-leveraged trading positions based on yield assumptions, are ultimately unsustainable at the system level. Because most importantly, it didn't reach super levels to cross into the mainstream, nor did it bring new demand from new players to trigger a broader and sustained bull market.

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What is the nature that the DeFi super cycle needs to have?

what is it doing

While the last cycle was broken, or at least incomplete, it did reveal the power of a new kind of supply-side innovation — DeFi is essentially building a new financial system from the ground up. Decentralized automated market makers (AMMs) and liquidity pools provide an alternative to professional market makers, order books, and clearing facilities. Flash loans offer unprecedented arbitrage and transaction capabilities.

This means that debt and leverage can be freely traded in a permissionless environment, enabling capital to work in incredible ways. On top of all the experiments in governance and new forms of coordination mechanisms for participants, what we inevitably call "digital equity":"And it has been proven in this particular application; it can quickly guide the liquidity of the network for lending."。

pass"*Now it's worth saying that if this sounds a lot like classic equity, it's because it is. And its long-term success depends on its"net market result"pass"net market result

; I mean its

super competitive

The inevitable degree of success in bringing efficiency and competition to consumers compared to any bad behavior in the current financial system. If it doesn’t properly go mainstream and have a significant positive impact for consumers, today’s ‘DeFi premium’ will become a ‘DeFi discount’ as regulators begin to enforce their actions. At least to the extent they can, this will lead to a cat-and-mouse game between regulators and markets, both temporarily constraining the supercycle and amplifying it as its unstoppable nature is reinforced: thus predicting a The small periods of the series are grouped together.

When programmable privacy solutions, such as Secret Network, start to be layered on top of DeFi, the community members who build and govern the protocol, as well as the applications built on the protocol itself, can choose the degree of anonymity they want, allowing More engagement, innovation and decentralization.

limitation

Furthermore, ironically, the tools carried by well-distributed governance rights may make it harder for regulators to argue that a network is not sufficiently decentralized.

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But now if we look back at the reasons for the limitations of DeFi 1.0: this series of supply-side innovations, when combined with stablecoins, also arguably failed to cross this limitation, due to the limitations of maturity and "protocol adaptation":"Deep DeFi"。

Ethereum Fees + Complexity (Technology + Risk*)

*The last point is because the composability of the DeFi stack is very complicated, Dan Danay of Key Tango can explain it well here

What is missing from DeFi+NFTs?"vampire attack"In the next series of articles, I will demonstrate some supply and demand side (near-to-medium term) innovations that remove many technical or economic constraints (in whole or in part), and when they do, promise to unravel DeFi The handbrake and allow for a series of possibly mini-supercycles that will likely aggregate into a metacycle and subsequently form a large bull market of 12 to 18 months.

Perhaps the most straightforward is NFT (Non-Fungible Token), as a mechanism to reward loyalty and prevent highly messy and unsustainable liquidity mining, leading to its economics and competition to the bottom