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Author: Mason Nystrom, Partner at Pantera; Compilation: 0xjs@Bitchain Vision
Consumer DeFi
As interest rates fall, DeFi yields are starting to become more attractive.Increased volatility brings more users, yields and leverage.Coupled with the more sustainable yields from RWA, it suddenly became much easier to build consumer-grade crypto finance applications.
When we combine these macro trends with innovations in chain abstraction, smart accounts/wallets, and a general shift toward mobile, there is a clear opportunity to create a consumer-grade DeFi experience.
Some of the most successful crypto financial applications in the past few years have been born with a combination of improved user experience and speculation.
● Trading robots (such as Telegram) – provide users with the ability to trade in messaging and social experiences
● Better crypto wallets (e.g. Phantom) – improve existing wallet experience and provide better experiences on multiple chains
● New terminals, portfolio trackers and discovery layers (e.g. Photon, Azura, Dexscreener, etc.) – Provide advanced features for advanced users and allow users to access DeFi through a CeFi-like interface
● Memecoins’ Robinhood (such as Vector, Moonshot, Hype, etc.) – So far, cryptocurrencies have mainly favored the desktop, but mobile-first experience will dominate future trading applications
● Token launchpad – (e.g., Pump, Virtuals, etc.) – provides anyone with permissionless permissions to create tokens, regardless of their technical capabilities.
With more consumer-grade DeFi applications rolling out, they will look like fintech applications with standard user experiences that users like, but they will aggregate on the backend and provide a personalized experience of the DeFi protocol.These applications will focus on discovering experiences, offerings (such as types of revenue), appeal to advanced users (such as convenient features such as providing multi-collateral leverage), and will often abstract the complexity of on-chain interactions.
RWA Flywheel: Endogenous Growth and Exogenous Growth
Since 2022, high interest rates have supported a massive influx of on-chain real-world assets (RWA).But now, the transition from off-chain finance to on-chain finance is accelerating as large asset management companies such as BlackRock realize the meaningful benefits of issuing RWAs on-chain, including: programmable financial assets, issuance and maintenanceThe low cost structure of assets and greater accessibility to assets.These benefits, such as stablecoins, are 10 times better than the current financial landscape.
According to RWA.xzy and DefiLlama, RWA accounts for 21-22% of Ethereum assets.These RWAs mainly appear in the form of Class A, U.S. government-backed U.S. Treasury bonds.This growth is driven primarily by high interest rates, which make it easier for investors to go long on the Fed rather than DeFi.Although the macro wind direction is changing, making the attractiveness of Treasury bonds less, the on-chain asset tokenization Trojan horse has entered Wall Street, opening the floodgates for more risky assets to enter the on-chain.
As more and more traditional assets are transferred to the chain, this will trigger a composite flywheel effect, slowly merging and replacing traditional financial tracks with DeFi protocols.
Why is this important?The growth of cryptocurrencies comes down to exogenous capital and endogenous capital.
Most of DeFi is endogenous (basically cyclic in the DeFi ecosystem) and is able to grow on its own.Historically, however, it has been quite reflexive: it will rise, fall, and then return to its origin.But over time, the new primitives have steadily expanded DeFi’s share.
On-chain lending through Maker, Compound, and Aave expands the use of crypto-native collateral as leverage.
Decentralized exchanges, especially AMMs, have expanded the scope of tradable tokens and activated on-chain liquidity.But DeFi can only develop its own market to a certain extent.While endogenous capital (e.g. speculation on on-chain assets) has pushed the crypto market to a strong asset class, exogenous capital (capital outside the on-chain economy) is essential for the next wave of DeFi growth.
RWA represents a large amount of potential exogenous capital.RWA (commodities, stocks, private credit, forex, etc.) provides the greatest opportunity for DeFi to expand, making it no longer limited to the circulation of capital from retail pockets to traders’ pockets.Just as the stablecoin market needs to grow through more exogenous uses (rather than on-chain financial speculation), other DeFi activities (such as transactions, lending, etc.) also need to grow.
The future of DeFi is that all financial activities will be transferred to the blockchain.DeFi will continue to see two parallel expansions: similar endogenous expansion achieved through more on-chain native activities, and exogenous expansion achieved through real-world asset transfers to the chain.
DEFI platformization
“Platforms are powerful because they promote relationships between third-party vendors and end users.” — Ben Thompson
Crypto protocols are about to usher in their platforming moment.
DeFi applications are all moving towards the same business model, from independent application protocols to mature platform protocols.
But how exactly do these DeFi applications become platforms?Today, most DeFi protocols are relatively rigid, providing a one-size-fits-all service for applications that want to interact with these protocols.
In many cases, applications simply pay the protocol its core assets (such as liquidity) like standard users, rather than being able to build differentiated experiences or programming logic directly within the protocol.
This is how most platforms start, solving core problems for a single use case.Stripe initially provided a payment API that allows individual businesses, such as online stores, to accept payments on their websites, but it only works for individual businesses.With Stripe’s launch of Stripe Connect, businesses were able to process payments on behalf of multiple sellers or service providers, making Stripe the platform they are today.Later, it provided developers with better ways to build more integrations, thus amplifying their network effects.Similarly, DeFi platforms like Uniswap are now moving from standalone applications that facilitate exchanges, such as DEX, to building DeFi platforms, allowing any developer or application to create their own DEXs on top of Uniswap’s liquidity.
The key driver of the transformation of DeFi platform is the shift in business models and the evolution of singleton liquidity primitives.
Singleton liquidity primitives – Uniswap, Morpho, Fluid – aggregate liquidity for the DeFi protocol, allowing access to two modular parts of the value chain, such as liquidity providers and applications/users.The liquidity provider experience becomes more streamlined, allocating funds to a single protocol rather than a differentiated pool of funds or an orphan vault.For applications, they can now rent liquidity from the DeFi platform instead of simply aggregating core services (e.g. DEX, lending, etc.).
Here are some examples of emerging DeFi platform protocols:
Uniswap V4 is pushing a singleton liquidity model through which applications (e.g., hooks) can rent liquidity from Uniswap’s V4 protocol instead of simply routing liquidity through protocols like Uniswap V2 and V3.
Morpho has moved to a similar platform model where MorphoBlue acts as the core liquidity primitive layer, accessible without permission through vaults created by MetaMorpho, a protocol built on top of the liquidity primitive MorphoBlue.
Similarly, Instadapp’s Fluid protocol creates a shared liquidity layer that can be leveraged by its lending and DEX protocols.
While there are differences between these platforms, the common point is that emerging DeFi platforms share similar models, building a singleton liquidity contract layer at the top and building more modular protocols on it for greater application flexibilityand customization.
The DeFi protocol evolved from standalone applications to mature platforms, marking the maturity of the on-chain economy.By adopting singleton liquidity primitives and modular architectures, protocols such as Uniswap, Morpho and Fluid (formerly Instadapp) are unlocking new levels of flexibility and innovation.This shift reflects how traditional platforms such as Stripe empower third-party developers to build on top of core services, thereby driving greater network effects and value creation.As DeFi enters the platform era, the ability to promote customizable, composable financial applications will become a decisive feature, expanding the market for existing DeFi protocols and enabling a new wave of applications to be built on these DeFi platforms.
