A quick look at the current development status of Defi

Today I saw an article translated on PANews showing the current development status of Defi, so based on this article, I summarized the current situation of Defi and put the citation at the end.

Let me first talk about my own point of view. Decentralized finance (DeFi) is the mainstream of future finance.Although the current market is still dominated by centralized exchanges (CEX), this is an inevitable part of DeFi’s growth.In the future, decentralized trading platforms will become the main tool for people to use in daily life, and CEX will continue to exist as a supplement.

The rise of a decentralized thing often requires some kind of “evil” to survive in the early stages and find dependence.For example, when the Internet first launched the picture function, the most searched content was not the landscape pictures, but pornographic content; a large number of transactions in the early days of Bitcoin also came from illegal transactions such as the gray market.But looking back, these “evils” do not define their future.The porn industry still exists on the Internet, but it has long been no longer mainstream; illegal Bitcoin transactions now only account for 3%-5% of the overall.

Survive first to have a chance to grow.

The original intention of DeFi is to get rid of dependence and trust in financial intermediaries, but in the process of development, it relies on a centralized system. This contradiction may be the price of growth.As Professor Xu Yuan of Peking University said in “The Boundary of Currency”, traditional finance is an evil dragon, and Bitcoin is a teenager who kills dragons:

“If Bitcoin is compared to the dragon slaying boy, then this boy did not kill the dragon. On the contrary, the boy’s butcher’s knife is already in the hands of the dragon. Even the dragon slaying boy himself jumped into the dragon’s arms, without any reluctance.”

At least I believe that the current desire to refuse and welcome is for tomorrow’s upright.

Back to the current situation of Defi, we often use TVL to represent the data that measures Defi’s strength.TVL: Total Value Locked, locked value.

Since it is locking the warehouse, what needs to be locked?

1. Stablecoin Agreement

Stablecoin protocols represented by DAI usually use an over-collateralization mechanism: users lock their crypto assets (such as ETH) in smart contracts and use them as collateral to mint stablecoins (such as DAI) anchored to the US dollar at a certain mortgage rate.In essence, this is a mortgage lending act, and mortgage means locking up positions.

2. Decentralized exchange

In decentralized exchanges, users deposit liquidity funds (such as various coins) for currency exchange and earning handling fees.

3. Derivative Plain and Leverage Trading Agreement

Traders deposit funds as margin to provide leveraged trading.The TVL here refers to the assets locked in the margin pool.

4. Pledge Agreement

Users pledge assets to obtain interest or equity tokens.For example, Lido is a protocol of this type. It uses the current Ethereum network to maintain network security by locking users’ tokens, participating in consensus and receiving rewards, and helping more users participate in this staking process.Pledge means locking the position.

5. Lending Platform

Depositors such as aave or compound mortgage assets to earn interest, and borrowers mortgage assets to exchange liquidity.

6. Income Aggregator

Users entrust assets to the agreement, and the agreement helps find the best profit strategy, including Yearn Finance and other types.

After so much introduction, let’s take a look at the pictures.

The total locked value of TVL on the entire network has reached US$101.7 billion, and the total market value of cryptocurrencies has reached US$3020 billion, with TVL accounting for 3.37%, which is relatively small in terms of value.This is mainly because the value of Bitcoin cannot contribute to TVL.

This is an analysis of the current proportion of cryptocurrencies’ market value. Bitcoin, which accounts for 63.8%, can actually rarely help TVL’s growth. The reason for this is structural.On the one hand, smart contracts are not supported on the Bitcoin chain. On the other hand, most of Defi’s core assets are mainly based on ETH, and BTC is passively held.Although Bitcoin also has Defi, it is mainly implemented off-chain or cross-chain.So this limitation makes the current growth of TVL has a ceiling.

Meanwhile, Aave and Lido’s TVL reached $34.5 billion, which means that more than 37% of Defi TVL are ETH staked in Aave and Lido.Most Defi happens on Ethereum, proving that it is still the most important blockchain.

The market value of stablecoins reached US$236 billion, accounting for more than 8.3% of the crypto market.In this report, the author said:

“Stablecoins account for more than 8.3% of the $2.8 trillion crypto market, more than double the DeFi. The growth rate of stablecoins continues to exceed DeFi TVL, indicating that it has truly achieved product market fit.”

This comparison is not very meaningful. Defi’s TVL also contains the market value of many stablecoins. For example, the TVL of a decentralized exchange requires you to pledge a trading pair, such as ETH/USDT, and you need to pledge both of these tokens.

“Ethereum is still the most important player in DeFi, accounting for 52% of TVL, but is down from 58.3% last year. Solana is the second largest contender with 8% of TVL, but is still more than 6 times smaller than Ethereum.”

“Borrowing, cross-chain bridges and liquid staking are the highest, with a relatively small gap between $42 billion and $37 billion. Last year, liquid staking was far ahead, but the gap has narrowed and lending and cross-chain bridges have already caught up.”

“Most players deposit funds in Lido for profit, which is probably because most people are confident about ETH as a long-term value storage tool, and Lido also dominates liquidity staking. Other ETH-based liquidity staking protocols also dominate, such as ether.fi.”

“Sky Lending is TVL’s No. 1 low-risk stablecoin option, with its SUSDS stablecoin holding over $2.5 billion and yielding 4.5%.

“Tether and Circle’s respective stablecoins are the largest fee-generating businesses in the crypto space to date. Tether alone has generated over $5.8 billion in revenue in the past year.”

“Solana’s handling fee ecosystem has grown the fastest in the past year, with Jito, Raydium and Pump.fun all earning huge handling fees. This is likely to be mainly due to the significant growth of memecoin on Solana.”

“Bitcoin fees have dropped by about half since last year, and Bitcoin’s ranking has fallen from second to 14th as many other competitors in the fee market rise.”

“The total market value of stablecoins has almost doubled, from $136 billion last year to $235 billion now.However, USDT and USDC still dominate, accounting for 62% and 26% respectively, accounting for 88% of the overall market.

The largest increase in share is Ethena’s USDe, which, although it was not launched a year ago, is now the third largest stablecoin with 2% of the market share.

Sky issued USDS tokens, breaking the dominance of DAI.However, Sky has a 3.5% market share after combining the market caps of DAI and USDS, and remains the third largest market player.

USDT, USDC, DAI/USDS and USDe together account for about 93% of the stablecoin market, with a market value of more than US$220 billion.”

Don’t just look at the dominance of USDT, it only accounts for 62% of the market share, it feels that it is only more than half. USDT’s penetration and channel capabilities are really too strong.

I have a friend who starts an artificial intelligence business and needs to reward African promoters, and the other party directly stated that he only needs USDT.

The power of channels cannot be underestimated.You may see various beverage brands emerging in first-tier cities, but in small shops in fourth- and fifth-tier cities, you can often only see brands such as Wahaha and Nongfu Spring.It is this in-depth and extensive channel layout that supports Nongfu Spring founder Zhong Shanshan and Wahaha founder Zong Qinghou ascended the throne of China’s richest man many times.

Let’s start with this today, Defi is the general trend.