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The former mortgages assets to obtain USD-pegged assets DAI, and the latter mortgages assets to lend DAI. At present, a large number of Defi projects are built on Ethereum, which has a certain relationship with the capabilities of MakerDAO, especially the demand for the stable currency DAI, which provides important support for most Defi projects.

The main reason is:

Due to the volatility of cryptocurrency assets, the demand for stable coins in the circle is increasing day by day. Hedging, cashing out, acceptance, etc. all need the support of stable assets. This demand has brought huge arbitrage space, making various types of Stable currency assets began to appear,

For example, the USDT that claims to send a currency to deposit one dollar to the bank, the stablecoin TUSD that anchors a basket of stablecoins, and the transparent public issuance and storage of Pax, etc., of course, the issuance of USDT, TUSD, PAX, etc. Centralized, but currently only DAI is the only currency issued in a decentralized manner. DAI is generated by mortgaging ETH. The entire mortgage mechanism is similar to locking 1.5 times the value of ETH and issuing a DAI. Among all kinds of stablecoins, decentralized DAI always occupies an important position.

In 2019, DAI and MakerDAO, which generated it, became the most beautiful kid in the Defi landscape. However, DAI is actually nothing new, it is just a mortgage-generated asset.

As early as 2014, BM realized the function of mortgaging assets to generate stable coins on the Bitshares platform. On the Bitshares platform, users can obtain a variety of anchored assets by mortgaging BTS, such as Bitusd anchored to the US dollar, Bitcny anchored to the RMB, and even Bitgold anchored to gold. This mortgage-anchored concept is in the Bitshares system It is very mature and has a complete set of supporting facilities. There is a built-in decentralized exchange (commonly known as the internal disk in the community) that supports the exchange between multiple trading pairs;

This articleThis article, it is quite interesting to understand the DAC concept designed by BM at the beginning), this complete package is now in the circle, and similar figures can be seen everywhere.

Bitshares is so perfect, can you imagine how people in the community think of MakerDAO? In fact, people who have stayed in the circle for a long time know that MakerDAO’s origin is notorious. MakerDAO was born in December 2017. Except for changing the mortgage assets from BTS to ETH, most of the functions are similar to Bitshares’ stablecoin functions. very similar.

People in the Bitshares community did not show any good looks other than laughing at it. In addition, MakerDAO was built on Ethereum, and ETH was used to mortgage assets. At that time, the BitShares community and the Ethereum community were incompatible. Some people in the Bitshares community believed that the operation of MakerDAO was not a Fork, but a blatant plagiarism; Another group of people think that MakerDAO is too insignificant, and it only implements a small part of the functions in Bitshares, so they don’t take it seriously; some people directly look down on this anchoring mechanism, thinking that the Bit series assets have failed enough. DAI will not succeed at all, and will produce black swans.

The black swan is an endgame that occurs after the anchoring mechanism fails. This kind of endgame can theoretically occur in both Bitshares and MakerDAO. Increase the position or repay the loan to ensure that the position will not be liquidated. When a large number of mortgagers fail to perform, their collateral will be liquidated, and the liquidated assets will be sold at a discount. If there are not enough purchase orders in the market to accept the order, the collateral The anchoring mechanism will fail.

The fact is that in the bear market in 2015 and 2018, Bitshares was close to the black swan several times. At that time, the price of BTS fell all the way, and a large number of mortgaged BTS assets were forced to be liquidated by the system. Just watching the market, there are a lot of sell orders, and the price keeps dropping, but there is nothing that can be done. No one can take so many sell orders. The situation was extremely critical at that time. Can you imagine the psychological shadow of those who hold a lot of Bit series assets behind this anchoring mechanism?

Shivering! ! !

BTS was defeated in such rounds of price erosion, which directly led to many people's doubts about its anchoring mechanism later. BTS is worthless, so why can the Bit assets obtained by mortgaging BTS be valuable? value? Although the generation of stablecoins by mortgage assets is a program execution, behind it is the value endorsement of the mortgage assets. When there is a problem with the value endorsement, the stablecoin also has problems.

The later story may be clear to everyone. Ethereum is firmly at the second place in market value, and Bitshares has already been transferred to the top 30. In addition to the black history of community crowdfunding, BM leaving, and the development direction of Bit assets in the wrong direction, the Bitshares community has long been at odds with each other. The same goes for the Ethereum community.

MakerDAO has thrived under the strong protection of Ethereum. Although DAI has only experienced one bull-bear, the ETH asset has experienced several bull-bears. The DAI obtained by mortgaging ETH, from birth to Now, it is still relatively stable and anchored at around $1, and an over-collateralization rate of more than 150% is enough to offset multiple rounds of price shocks.

You know, the BTS system has always required a mortgage rate of more than 175%, and DAI’s 150% has not collapsed, which is enough to show people’s confidence in the price support behind ETH, which is much stronger than the price endorsement of BTS.

It is because of the shelter of the big tree that MakerDAO began to show stronger vitality, and DAI assets began to be exported. We can now see DAI trading pairs on many decentralized exchanges, even on centralized exchanges. It can be seen that many people mortgage ETH, obtain DAI, and then buy ETH. This is the same as people mortgaged BTS to obtain Bitcny, and then bought BTS.

Therefore, the trends of DAI and Bit assets are actually very similar, and MakerDAO is also walking the path that Bitshares has taken, and the former is going further than the latter is that new Defi projects have begun to be developed on the upper layer of MakerDAO Applied, this is a point where MakerDAO is more fortunate than Bitshares.

Looking back at the Defi landscape from MakerDAO, in fact, many Defi projects are not as deified as the media said. There are a lot of beautiful data reports. I summed up the stories of MakerDAO and Bitshares. The most profound experience is, well A project with a good idea needs a good carrier, and the fertile soil can provide opportunities for the project to continue to grow.

For entrepreneurs, to grasp a direction and find fertile soil rich in nutrition, the next thing they need to do is to bury their heads in the cultivation.

The concept of Defi is too big. At this stage, it is difficult to have a Defi project that can be large and comprehensive. Most of them have more vertical applications. A new field must develop from infrastructure to platform, and from platform to basic equipment. I think that the development of Defi has passed the basic stage of establishing infrastructure, and has entered a node from application development (to verify the integrity of the previous set of infrastructure).

Looking at the current Defi projects on the market, MakerDAO’s stable currency and lending are one kind, the prediction market Augur is one kind, and the decentralized exchange Dydx is one kind. There are not many general classifications, but because of the particularity of Defi , There will definitely be some emerging financial products coming out.

We look at the division of labor in the real financial industry today, which is very scattered, but also focused. As big as the central mother can manage everything, as small as the welfare lottery purchase point to help bet, if 80% of the financial products in reality are realized in a decentralized way, then the space that can be imagined here is huge.

From a usage point of view, stability is a huge requirement. Therefore, stable currency must be a very large market. The Internet giant Facebook released Libra, which took the lead in entering the circle from the traditional world and broke the existing rules of the issuance market. It turns out that the stablecoin market is highly politicized and endorsed by national sovereignty. As a result, various economic games based on this have never stopped. It is hard to imagine the impact this will bring.

If the wheels of the blockchain continue to move forward, the blockchain-based credit currencies between countries will gradually surface. At that time, their circulation methods, regulatory policies, and monetary policies will show a new situation. Of course, people can ignore the various practices of centralized organizations and issue super-sovereign currencies through code logic, such as MakerDAO.

From the perspective of assets, financial management is a huge demand. In view of the volatility of cryptocurrencies, if they enter the public, there will be a very large demand for the preservation of assets by the public. In reality, banks are the first portal for the preservation of public assets. There are many financial management methods such as savings and fund purchases. In the Defi project, Compound undertakes the possibility of interest-earning and value preservation. Users can obtain profits through lending to ensure the protection of their assets. Value, in this model, Compound is similar to the bank's deposit lending intelligence, except that the former has the characteristics of transparency, traceability and other decentralization.

Of course, in addition to lending, asset holders can choose to invest in return, but blockchain speculation is chaotic, and there are no good Defi projects that can solve this problem.

From the perspective of arbitrage, investment is a huge demand. Capital is profit-seeking, so seeking asset appreciation is not only a value preservation but also a very big demand. A large number of investment opportunities exist in the blockchain world, but the speculative risk in the blockchain world is extremely high without any endorsement, and investments in the traditional world cannot be invested in cryptocurrencies at all, which has caused investment contradictions.

V God mentioned a decentralized ICO method before, adding an exit mechanism. When there is a problem with the project's development roadmap or the team, the initial investor can choose to withdraw halfway and get back his assets. This kind of ICO is realized through smart contracts, and the ownership of assets does not belong to the fundraising team before the vesting period. In essence, this is a DAO for ICO. This is also a very good Defi direction, but it has not been well realized at present.

From a mobility standpoint, ABS is in great demand. The main risk of ABS asset securitization is that there are no assets with stable returns. In reality, highway toll stations, milk produced every year in farms, and annual rents collected by office buildings are all good ABS targets. Are there such assets in the blockchain?

Yes, there is a Defi project. One of the things that Stafi Protocol is doing is to ABS the current Staking assets. At present, the PoS consensus has locked a large number of staking tokens. Project tokens with a high staking rate account for 80% of the total currency volume. Locking this part of the asset ABS provides liquidity and reduces the need for frequent calculations for the project itself, killing two birds with one stone. . In addition, in addition to the ABS of Staking assets, stable assets generated by mortgage can also be used for ABS, but multiple and complex smart contracts are required to realize it, and the risk is relatively high at present.

Stable currency, lending, investment, liquidity, and ABS asset securitization are all relatively good vertical directions for DeFi at present. The good point of these directions is that they are very close to assets, and the bad point is that they are too close to assets. The development of smart contracts is too fast, and its risk is relatively high. It is too harsh to ask a new thing to take such a large asset risk, but the first batch of people who eat crabs are always brave. History tells us that when the right time There will always be such a group of people.

This is the second article in the Defi Overview series. The next article will talk about the development and emerging opportunities of Defi vertical applications.