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Original Title: The Defi Renaissance: Make Defi Great Again
Author: Arthur Cheong, founder of Defiance Capital; Eugene Yap, ARKOLITE Management Partner; Compilation: 0xjs@作 作 作 作 作 作 作 作 作
The European Renaissance, which began in the 14th century, has inspired the revival of art, culture and thoughts, and changed modern civilization.
Today, we have witnessed similar awakenings in the field of cryptocurrencies -decentralized finance (DEFI) revival.Like similar campaigns in history, this movement is breaking the barriers and reshaping our views on currency and finance.With the support of blockchain and smart contracts,DEFI realizes the democratization of financial services, so that people around the world can enter the economy without traditional financial agencies.It may completely reshape finance.
Just as the European Renaissance flourish due to technological progress and social change, Defi revival is also promoted by key factors. These factors have pulled them out of their early challenges and entered a new period of growth and innovation.
1. DEFI is getting out of the dungeon
Defi surged in 2020 and 2021 because many people believe that it will completely change the traditional finance (Tradfi).However, like most new technologies, when the underlying infrastructure is proven to be insufficient, the early speculation has disappointed, resulting in decline in 2022.
However, like any revolutionary movement, DEFI has become more powerful, and it has gone out of the “downturnal trough” and began to climb up the enlightenment slope.The Gartner speculation cycle is an effective framework to illustrate this process, where DEFI now shows signs of revival.
After two years of adjustment, key indicators such as the total lock value (tvl) are rebounding, as shown in the figure below.Although some indicators have improved dueThe transaction volume on the DEFI platform has also increased significantly, and it has returned to the level of 2022, proving that the recovery is real.
In fact, multiple indicators of some basic DEFI projects (such as AAVE) even exceeded the peak of 2022.For example, AAVE’s quarterly revenue has exceeded the fourth quarter of 2021 (considered the peak of the previous round of bull market).
See our complete aave analysis “>AAVE is seriously underestimated“” “.
This shows that DEFI is moving towards a new stage of maturity and entering productivity, and prepare for long -term scalability.
2. The new interest rate cycle will make the DEFI return more attractive
Defi’s recovery is not only driven by internal factors; changes in external economic changes also play a key role.With the changes in global interest rates, risk assets such as cryptocurrencies including DEFI, including DEFI, have become more attractive for investors who seek higher returns.
With the Fed’s implementation of 50 basis points in September, interest rates in the next period of time may decrease, similar to the environment of cryptocurrency bull markets in 2017 and 2020, as shown in the figure below.Bitcoin (and cryptocurrency) bull markets are highlighted in green. It is historically at a low interest rate system, while the bear market is highlighted with red, which is usually during the rise of interest rates.
DEFI benefits from lower interest rates from two main aspects:
1. The cost of reducing the chance of capital——Nolita, due to the decrease in interest rates, the low returns provided by government bonds and traditional savings accounts, investors may turn to the DEFI protocol that provides higher returns, such as providing by income farming, pledge and liquidity.
2. The loan is cheaper——The financing cost becomes lower, encourages DEFI user loans and uses it for productive use, thereby promoting the overall activities of the entire ecosystem.
Although interest rates may not fall to nearly zero levels in the past cycle, the opportunity cost of participating in DEFI will be greatly reduced.Considering the difference between interest rates and income can be enlarged through leverage, even a moderate decline in interest rates is enough to have a huge impact.
In addition, we expect that the new interest rate cycle will become a major driving force for stable currency growth, because it greatly reduces the capital cost of traditional financial funds seeking to return to DEFI.
In the previous cycle, FFR (Federal Fund interest rate) and stable currency supply increased in contrast, as shown below.As the interest rate decreases again, the supply of stable currency is expected to increase, providing more funds for Defi to accelerate.
3. Finance: (still) is the largest product market in cryptocurrency
The encryption field has tried various encryption cases, such as NFT, Yuan Universe, games, social networking, etc.However, according to most objective indicators, they did not really find the product market fit (PMF).
Considering the following situation: Even if the Bitcoin Ordinals leads a short -term recovery in 2024, the daily transaction volume of NFT will continue to decrease.
As for the Yuan universe and games, there is no breakthrough web3 game.The two OG web3 yuan universe DECENTRALAND and SandBox are even difficult to obtain even thousands of daily active users, while Roblox’s DAU is as high as 80 million.The DAU of the Ton game is impressive, but when there is no more economic incentive, how many people will continue to play games on TON.
on the other hand,DEFI has proved that its product is in line with the marketEssenceThe growth of core DEFI categories such as liquidity pledge and lending (a year -on -year increase of more than 100%) proves its appeal.At the same time, new categories worth billions of dollars, such as Eigenlayer and Ethena (Ethena) with zero tvl a year ago, are rising.This explosive growth shows the combined nature of DEFI and the nature of no license. Among them, the new financial “Lego Block” is stacked with each other to unlock new use cases.
Regulatory obstacles have long hindered the potential of Defi to subvert Tradfi, but the inherent advantages of Defi are obvious.For example:
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Cross-border transactions and remittance costs are 6%, and transfer takes 3-5 working days.
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The background system of the securities exchange is too bloated, and the business hours are limited, resulting in low efficiency.
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Real -world assets (such as real estate) can benefit from the combination of tokens, release liquidity, and realize the combined characteristics of DEFI, such as mortgages.
DEFI can operate around the clock with low cost and strong liquidity. It does not require intermediaries. Therefore, it is a more efficient alternative.This technology already exists; the challenge is whether regulators will allow DEFI to subvert the global financial industry worth $ 10 trillion, and the industry relies on low -efficiency and flourish.
To explain how DEFI is better than TRADFI in terms of efficiency, let us compare the cost of running services in the two systems.The following are the details obtained based on one study of IMF:
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Labor cost: The labor cost of DEFI is close to 0%, while the labor cost of Tradfi is 2-3%.For example, Defi loans are automatically processed without manual intervention, and Tradfi requires manual review and document work.
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Operating costs: The operating cost of DEFI is only 0.1%, while the operating cost of Tradfi is 2-4%.DEFI avoids the demand for large offices or intermediaries, because smart contract processing transactions, blockchain provides verification.
Overall, the marginal cost of traditional finance reaches 6-8%in developed economies and 10-14%in emerging markets. These costs are passed on to end users.
DEFI eliminates these inefficiency.It’s that simple.
In addition, the Fintech field has almost no innovation in the past 15 years, echoing the study of Blockchain Capital.Although we have made great progress in the fields of artificial intelligence and global Internet access, fintech still stays in outdated systems. For example, all banks have used SWIFT systems with a history of 50 years.day.
Most fintech progress, such as digital payment, zero shares, and APIs, are focusing on improving user experience, rather than solving the problem of low core efficiency of traditional finance.For example, Robinhood and Plaid have established a convenient solution for everyone to buy stocks, but they still rely on old financial infrastructure.The real problem is that fintech connects to outdated systems to make full use of them, rather than creating new things.Although these changes are helpful, they do not solve the deeper problems that plague the traditional financial world.
DEFI is different.It has been digitized from the beginning.Defi is not operating around the old financial system, but directly embedding financial services into the Internet.In DEFI, small fragmented stocks, excess mortgage loans and global payment are not innovation -they are just basic functions.This marks the fundamental transformation of financial operations from childhood to thorough reform.
By adopting DEFI, we can surpass small adjustments, start to release a large number of new economic opportunities, improve financial services channels, and create wealth in places often ignored by Tradfi.This is about reshaping the financial system so that it can better operate in the digital world.
Looking forward to the future, the US election in 2024 may bring clearness to regulatory regulations.Trump’s election president may bring regulations that are conducive to cryptocurrencies, and the Harris government, which has recently changed the industry, may maintain a positive position.Regardless of political results, the momentum behind Defi is undeniable.
Defi has just started, and the future of finance is decentralized and chain.
4. Enhanced UI/UX, infrastructure and security
The shortcomings of early Defi were that the interface was awkward and the technology was complicated, resulting in user loss.However, in the past few years, user experience, infrastructure, and security have improved significantly, making mainstream users easier to accept DEFI.
One of the most significant improvements is wallet infrastructure.Management notes and private keys were once a major obstacle, but new smart wallets and embedded wallets make this process easier and safer.Social recovery, biometric identity authentication, and password -free login are now easier to manage funds without the complexity of traditional Web3 wallets.
Safety has also been improved, and the more thorough smart contract review before deployment has become a standard.Platforms such as IMMUNEFI encourage white hats and hackers to find vulnerabilities and security problems through vulnerability bounty plans to ensure that the vulnerabilities are solved before the vulnerabilities are used.The development of wallet infrastructure and security makes DEFI more secure and more efficient for all users.This result was reflected in the number of DEFI hackers in the past year.
Through these improvements, DEFI has become more and more easy to be accepted by the mainstream, including the adoption of by the institution, which has promoted its continuous growth.
Make DEFI great again
Just as the European Renaissance reshapes society, DEFI will completely change finance.DEFI’s innovation potential is huge, and we have just begun to see its influence.As more and more users and investors accept DEFI, the future of global finance will be more and more transferred to the chain, making the financial system more efficient and open, and allowing everyone to use it.
DEFI has the ability to eliminate low efficiency, break barriers, and create new opportunities for financial inclusiveness.This is not just a short -term trend, but the fundamental change of the world and money interaction.From global payment to the democratization of financial services, DEFI provides a future of anyone who can participate in the financial system.
At present, the total market value of all Defi protocols is about 33 billion US dollars, accounting for only about 1.4% of the total market value of $ 2.3 trillion.
Data October 13, 2024
In view of the severe market conditions and the industry environment, the growth and success of Defi have been largely ignored recently.At this time, this situation will change, such as AAAAAAAAAO in its recent token economic change proposal.Market participants will further recognize the fundamentals and potential of Defi and redefine their capital accordingly.
With the continuous growth of DEFI and the awakening of the market’s latest attraction and new potential,We expect that the market value of such DEFI assets accounts for the total market value of cryptocurrencies will increase from 1.4% to 10% in the next two years.
Make DEFI great again.
Thank you
1. Popularians of the term “DEFI Revival”
