Bitcoin surpasses Ethereum as the mainstay of DeFi? Here are 5 predictions for DeFi in 2020

Roy Learner is a researcher at Wave Financial, a Canadian asset management company. He gave five predictions for the development prospects of DeFi in 2020:

  1. Stablecoin market cap will exceed $ 15 billion
  2. Interoperability will be achieved in 2020
  3. "BTC will surpass ETH as the main value locked in DeFi"
  4. Rollups + unmanaged exchanges will be 10 times the current "DEX" market share
  5. Mortgage ratio will remain above 100%


Image source: Pixabay

Decentralized finance (DeFi) has grown to be one of the main drivers of Ethereum adoption. The core of DeFi is to provide a brand-new, license-free, no centrally authorized financial ecosystem that can be used by everyone worldwide.

2019 has made DeFi the focus of attention, and despite the impressive growth, there are still huge challenges to realize the true potential of DeFi, which I wrote in a previous Harmony joint research report.

1 * m2UaolGgD0BrxUdEQAVqng

Looking forward to 2020, I am very optimistic that issues such as scalability, consumer-friendly interface, and fiat currency access channels will be resolved. However, I believe we are far from addressing other challenges such as credit scores, financial privacy, and most importantly risk (RISK).

Here are my predictions for DeFi in 2020:

1. The market value of stablecoin will exceed $ 15 billion

In 2019, the total market value of stablecoins has increased by approximately 50% from US $ 3.3 billion to US $ 50 billion, while Tether's dominance has reached ~ 80%.

In the future, the space for the stable currency to grow three times will come from multiple fields:

  1. Facebook's Libra stablecoin launches
  2. New stablecoins from CELO, Velo, Saga, Franklin Templeton and more are listed
  3. Growth of non-speculative and speculative use cases
  4. Multi-collateral Dai accepts new assets as collateral (BTC, Treasury bonds)
  5. Increased desire for returns in a negative interest rate environment

2. Interoperability will be achieved in 2020

In addition to Keep's tBTC, Thorchain, Ren mainnet, growing Cosmos ecosystem, Interledger protocol, Kava, one-way anchoring, two-way anchoring, bridges, atomic swaps, Polkadot will be released in 2020. Highly anticipated.

I firmly believe that inter-protocol interoperability will be "solved" in 2020, but it is not clear which technology will gain market share.

Although interoperability is inevitable, I think the biggest impact will be around Bitcoin, as few other digital assets are worth interoperating in the context of DeFi (most stablecoins are already ERC-20 tokens, and Privacy solutions are entering Ethereum).

Taking Bitcoin as an example, Deribit Research succinctly emphasized the trade-off space for interoperability solutions:

  1. Anti-censorship: anyone can create, exchange and use tokens, regardless of their identity or jurisdiction.
  2. Anti-confiscation: Neither the custodian nor other third parties can seize the currency in the deposit.
  3. Targeting Bitcoin's price stability: Agent tokens closely track the price of Bitcoin, thus inheriting its currency attributes.
  4. Acceptable operating costs: The system can provide services at a price that appeals to users and custodians.

In the ocean of cross-chain competition, I believe that by 2020, there will be solutions that meet these trade-offs and eventually enable BTC to exchange trustlessly between the various chains. This leads me to my next prediction:

3. "BTC will surpass ETH as the main value locked in DeFi"

Although I may be called the "maximist", take a step back and look at the current centralized lending market, and maybe you can understand the impact of introducing Bitcoin as collateral in DeFi.

BTC is the main collateral in derivative markets such as BitMEX, and BitMEX's annual trading volume exceeds $ 1 trillion. Similarly, leading institutional lender Genesis Capital noted that as of the third quarter of 2019, their BTC income on the books was approximately $ 215 million, and Celsius emphasized that BTC was the largest deposit among its approximately 163 million net deposits. currency.

I still believe that DeFi's growth will be driven by speculative use cases (such as margin loans), and that Bitcoin as a long-term collateral will enhance the total value locked in the DeFi agreement.

Bitcoin's liquidity is 3 times that of ETH, and its market value is 8 times that of ETH, and its historical volatility is not as good as ETH (surprisingly, the current ETH's volatility is flat with BTC), making it a type of collateral Advanced form, assuming that BTC can perform trustless interoperation with the DeFi protocol as described in # 2 Prediction.

To hold yourself accountable, as of this writing, the current Ethereum lock on all DeFi platforms is about $ 390 million.

4. Rollups + unmanaged exchanges will be 10 times the current "DEX" market share

Crypto Twitter users are very excited to introduce Optimistic / Zero-Knowledge / BLS Rollups as a potential Ethereum extension solution.

1 * GFvPxgRP3R5DZGAyfS9slA

Coupled with the recent Istanbul hard fork, which includes EIP that makes zk-SNARK cheaper, ZK Rollups is particularly promising to increase ETH throughput to over 2000 + TPS.

IDEX recently released a 2.0 DEX demo that leverages Rollups functionality. DeversiFi (formerly Ethfinex, separated from Bitfinex) is working with Starkware to use ZK-Rollups for its hybrid unmanaged exchange, which uses Bitfinex's order book.

Suppose that an unmanaged “decentralized” exchange can provide a similar trading experience, avoiding issues with upfront trading and absorbing liquidity from a centralized order book (basically, if ZK Rollups looks like magic and interoperates Sexual solution works), I believe we will start to see traders move in for two reasons:

  1. Unmanaged transactions reduce counterparty risk
  2. Being able to trade with your chosen custodian (or self-custodian) is a better experience

In addition, cryptocurrencies have been scrutinized by more and more regulators. Many exchanges have delisted assets such as privacy coins, while exchanges as custodians bear high regulatory / insurance costs. Given the history of exchange hacking, and given the different core capabilities required to build a trading platform / careful management of escrow risk, it is surprising that the exchange also doubles the number of depositaries.

With the blockchain technology finally surpassing the hype in 2017, by 2020 unmanaged exchanges will gain considerable market share.

5. Mortgage ratio will remain above 100%

Given the inherent volatility of crypto asset collateral, the collateral ratio will always need to provide a meaningful buffer, as the underlying assets may change significantly before liquidation occurs.

Although I believe there will be improvements in 2020, I think there are at least a few years before the decentralized identity and credit scoring primitives, which will make under-mortgaged loans a reality.

1 * Hh-o17J78Wor4VpENCautw

My gut feeling is that we will start to see centralized providers implement a hybrid model that combines traditional credit score data and alternative data sources to provide under-secured loans. For example, all of my money was spent on the Libra wallet Calibra, which ultimately used Facebook's massive data to provide loans to thin file applicants.

However, at the same time, the introduction of less volatile collateral, such as government bonds, stablecoins supported by fiat currencies (such as USDC), gold, tokenized real estate / invoice, etc., is expected to reduce the collateral ratio.

Also, I hope we will continue to see more trial experiments.