Messari founder's latest report: Is there still hope for DeFi in 2020?

Author: Messari founder Ryan Selkis translation: block rhythm BlockBeats-0x60 Original: https: //

BlockBeats has been tracking decentralized financial (DeFi) projects since 2019, and has recognized its future development direction and application areas. In 2019, we have seen that MakerDAO, InstanDapp, Synthetix, Compound and other projects have achieved unknown success in the field of science popularization and automated arbitrage, but payment projects such as Lightning Network have not made much progress. So in 2020, can decentralized finance achieve more achievements and what are the future development trends? BlockBeats has translated the "2020 Decentralized Financial Trends" article by readers Ryan Selkis, founder of foreign investment research institute Messari.

The following is the full text of BlockBeats translation:

1. Maker: No longer the only item on DeFi

DeFi's impressive development in 2019 can be attributed in large part to MakerDAO, the most systemically important protocol in the cryptocurrency industry. As the most important fundamental part of the DeFi ecosystem, Maker's Dai remains the largest and most competitive stablecoin collateral solution. However, it is no longer the only important DeFi protocol, and it is likely to face more severe competition in terms of loans and stablecoins. In the first half of this year, MakerDAO led most of the increase in the value of DeFi hedging, from about $ 250 million in January to about $ 500 million in July. Since then, the new DeFi protocol has really started to rise. At present, Maker locks up about $ 330 million in ETH in the DeFi ecosystem, and the total value of the lockups of protocols such as Synthetix and Compound is only $ 260 million. Maker's "dominance" has dropped from 90% at the beginning of the year to just under 50%.

Last month, Maker fulfilled its long-term vision of launching multi-collateral Dai, launched support for new collateral types other than ETH, and added an important new Dai Savings Rate (DSR), which is Dai ’s “risk-free interest rate "To help ensure that Maker's stable costs are controlled, as Maker holders currently have another leverage tool to drive the demand for Dai (such as anonymous central bankers). The addition of these features will attract a new collateral base in 2020, which will stimulate market growth and add new stabilization mechanisms for Dai.

2. Synthetix broke out

Synthetix, an agreement for the issuance of synthetic assets, whose transaction volume has grown from less than $ 1 million in August to nearly $ 10 million in December (calculated based on a 30-day moving average), and introduced a Dai's new stablecoin, Synthetix USD (SUSD). Although the market value of SUSD is about 10 million U.S. dollars, which is still an order of magnitude lower than Dai's market value, Synthetix is ​​growing rapidly as a platform-level protocol, and because its token value has soared by 3300% in 2019, it will definitely attract market attention . We don't think this project will be a flash in the pan, although we are concerned about the reflexivity of synthetic tokens (when synthesizing new types of synthetic tokens, the value locked in Synthetix is ​​the SNX token itself, and the "systematicity" of the SNX token itself risk").

(# 彬 律 动 BlockBeats Note: Synthetix is ​​a multi-layered issuance platform, a collateral type trading platform, allowing any Internet user to create synthetic assets from cryptocurrencies to fiat currencies to derivatives. From January to February 2018, (Synthetix, then run under the Haven brand, raised a total of $ 30 million through private and public fundraising)

We wrote last year, "Stable currency backed by the US dollar will push" open finance "into the mainstream. The US dollar-backed stablecoin concept will expand to other asset classes, such as tokens tracking the S & P 500 index. The new crypto index, which reflects the performance of traditional assets (synthetic cryptocurrency securities), is an untapped (but technically illegal) market with huge potential, which may pick up in 2019. ''

For an Indonesian investor who cannot directly buy the S & P index, how can it replicate the returns of the S & P index? How to solve this problem, Synthetix is ​​trying a new frontier, although we have seen again that they rely on the immature oracle to complete the risks brought by these smart contracts.

3. DeFi is not like this

The DeFi protocol calls itself open, license-free, uncensored, and so on, but it is too early to believe that these ambitions can sweep the globe. Earlier this year, an audit found that Compound had administrative privileges and the team was able to change various parameters and conduct transaction reviews. The Compound team quickly upgraded the protocol, but the signal released was clear: Don't trust the "De" in DeFi during the testing phase. If there's anything else worth mentioning, it's that some early-developed networks have strong community leaders. The speed at which the Maker Foundation processed a recent vulnerability contrasted with the processing speed of Augur, which has been working for months on the malicious behavior of an anonymous prankster who has created many in 2019 False prediction market.

(# 彬 律 动 BlockBeats Note: Compound, a decentralized financial (DeFi) loan agreement, is the first project to obtain venture capital from Coinbase. Compound provides due interest to crypto assets placed on trading platforms and wallets. Each The interest rate of the asset will be dynamically adjusted according to the borrowing demand of the asset; Compound currently has assets worth more than $ 150 million; on November 14, 2019, a Series A financing of $ 25 million was completed, led by a16z, and other major investors Including Bain Capital Ventures, Polychain Capital, Paradigm, etc.)

4. Superfluid collateral (also known as "how can I destroy the system?") And on-chain derivatives

To date, most DeFi participants have been moderate to their peers. This may be because most early adopters and early token holders have the same ideas and goals. This will change as DeFi continues to explode, and investors are investigating how to implement effective short positions. Critics have previously pointed out that there are security holes in these DeFi ecosystems, and some may soon start trying to default and recover collateral. As agreements continue to build on a mutual basis, so does the risk. Just like the crisis brought by collateral-backed securities, once a system-wide "black swan" incident occurs, it will be difficult to remove DeFi's collateral position. In fact, I am convinced that there must be a "DAO" in the Defi field, that is, investors will be completely eliminated before resetting and rebuilding.

(# 彬 律 动 BlockBeats Note: Superfluid Collateral, the ability to have the same asset in multiple agreements at the same time, is inherently attractive and can offset the low use of capital for over-collateral required by a credit agreement that does not require a license Efficiency. It is used as both collateral and other purposes, such as lending, market making, etc., and can achieve both purposes; that is, an asset is a liquid collateral, which is then used to provide liquidity

Due to the systemic risk of DeFi failure, most practitioners need to have better hedging tools before exposing any actual capital to risk. Ohmydai, based on the White Paper of the Convexity protocol, is an early case where users can buy put options based on Dai (ie, sell Dai at any future point in time at 1 USDC). It's like a credit default swap agreement, a parody of a credit default swap (I love cryptocurrencies), but it makes sense to exist! If you have a good net interest margin on your Dai loan book, you may be willing to pay a point of interest margin for this insurance. If the theme for 2019 is DeFi loans, then the theme for 2020 will be DeFi derivatives. Long hedge, short risk.

5. Development of DAO

Although the original DAO had a grand vision, similar to a non-leaded Softbank Vision Fund, we also saw a revival of a much smaller, sophisticated DAO design experiment. Examples include MolochDAO (allocation of ETH 2.0 funding grants), MetaCartel (Web 3.0 dApp development grants), and MarketingDAO (a marketing fund managed by the Ethereum community). So far, these measures have worked because they manage public goods and expenditure accounts, not investor capital. But the success of 2019 shows that DAOs can effectively coordinate human financial behavior. This vision is too big. By 2020, the first "for-profit" DAOs will gradually develop.

6. Centralized trading platform test of open finance

In the past year, we have seen every crypto trading platform trying to catch up with Binance. Most non-US cryptocurrency trading platforms have followed the example of Binance and sold their own trading platform tokens. After the launch of Binance Launchpad, almost every major global cryptocurrency trading platform has launched the IEO platform. When Binance launched its own blockchain network, other trading platforms followed suit. Trading platform tokens represent a new form of close relationship, partly loyalty, partly lottery nature, and partly equity share. As some crypto trading platforms migrate tokens to their own local blockchain networks and decentralized trading platforms (compared to Ethereum), the boundaries between companies and networks begin to blur. For a blockchain network (such as BNB) of a large trading platform, it is reasonable to fork out a DeFi protocol. Like Compound, it has started to have actual needs, but in terms of liquidity, it can be ignored. If the trading platform tokens (and their corresponding liquidity pools) can induce DeFi users to switch networks, then the Ethereum's DeFi protocol will be downgraded to the form of a test bench.

7. Decentralized transaction experiment of centralized finance

In the field of trading platforms, liquidity is king. It is the same for the centralized and decentralized fields. The peer-to-contract (P2C) model, such as Uniswap, further verifies this. With this agreement, anyone can get the benefit of depositing capital into the shared liquidity pool through this agreement. The P2C model is quite effective because it reduces the need for counterparties and the associated complexity of providing liquidity for a decentralized order book. That's why Uniswap can thrive when the P2P model prevails.

(# Blockchain 律 动 BlockBeats Note: Uniswap is a protocol for automatic token exchange on Ethereum. It is designed around ease of use, gas efficiency, anti-censorship, and zero rent withdrawal. The design of Uniswap can be traced back to the earliest. A proposal published by Vitalik on Reddit in October 2016. Hayden Adams started developing Uniswap based on this proposal from the end of 2017, and received Ethereum Foundation funding of $ 100k in August 2018. It was deployed on the chain in November 2018)

WX20191228-113846 @ 2x Source: Defi Pulse

It now appears that Uniswap may also be a solution for building an illiquid secure token market. Through some legal engineering, it is possible to create a whitelisted security token for defined types of (KYC'd) traders and facilitate transactions in the P2C market. RealT just sold a Detroit-based property to investors worldwide using a security token backed by Uniswap, which represents part of the ownership and rental income rights of the property owned by the holder. It may take years for a centralized securities token trading platform to establish sufficient liquidity and ensure the security of the regulatory license before it becomes interesting or available to the final issuer. Uniswap is likely to get to market faster because (currently) the size of the mortgage is still relatively small.

2019 is a disappointing year for the DEX project and its trading volume performance (down compared to the rest of the market), and Uniswap is the only bright spot among them. These protocols may be indispensable for the interoperability of cross-chain applications (contract-to-contract, or machine-to-machine payment); and they have low liquidity in transactions or difficulty supporting tokens (privacy Center tokens, or securities-like tokens), they may still rely on these protocols to defeat centralized trading platforms. However, the interest rate differential will remain high. For the foreseeable future, centralized trading platforms and OTC platforms will still account for 99% of market transaction volume.

8. Lending market

Overall, the lending market has become a growth market, especially in the field of DeFi. In 2019, the DeFi agreement generated a total of US $ 650 million in loans. Currently, US $ 450 million is locked up as collateral, and approximately US $ 75 million of loans are outstanding. The Compound protocol (no token issuance) is currently second only to Maker in the loan agreement, ranking second in terms of value hedging, and gains the attention and investment of top cryptocurrency investors. (But if a multi-billion dollar trading platform can fork the code without any impact, is there a long-term business model?)

Mortgages are a start, but the new financial system will not be built solely on mortgages. We are still waiting for better decentralized identity and credit scoring applications to fill the current shortage of DeFi loans. Until we reach our destination, the loan will be limited by the value of the cryptocurrency held as collateral. For the current experimental phase, this may be a good thing, because the real risk lies in the security, governance, and auditability of smart contracts. The possibility of a DeFi bank run has not been discussed, but Alethio explained the mechanism well in an article.

9. DeFi Wallet

This year, the monthly disbursement of DeFi loans has increased five-fold to more than $ 100 million per month. As cryptocurrency mortgages begin to adapt to the product market, the focus of development has naturally shifted to how to capture user relationships. The new DeFi interface is actively competing to become a one-stop shop model, where users can hold, trade, exchange and loan in the same place. The most successful interfaces will be the trading platform (the current audience) and the tools that can most abstract away complexity. Betterment-LendingClub-Robinhood hybrids, such as InstaDapp and Zerion, have been invested by well-known investors such as Pantera Capital and Placeholder. I expect these teams and other projects (such as Linen, Argent) to receive more funding in 2020 to compete with cryptocurrency gateways that represent "autonomous" cryptocurrency users.

(# 局 律 动 BlockBeats Note: InstaDapp, a DeFi product that specializes in MakerDAO CDP position management, the lock-up amount in July 2019 has reached $ 41 million, and its "InstaDApp Bridge" function enables MakerDAO to be linked to Compound Users can get the best lending rates on MakerDAO and Compound platforms through InstaDapp.

Zerion, a blockchain-based DeFi decentralized financial protocol, creates a trustless banking system and provides secure and seamless access to all financial activities. Zerion aims to be the gateway to the decentralized financial world, and can be used in applications such as 0x, Uniswap, Kyber, Compound, MakerDao and so on. )

10. What has changed compared to last year?

Earlier this year, I thought the prediction market, the token management registry, and "Continuous Organizations" were all exciting. I think I will still be like this year, but the prediction market has taken a serious step backwards. Augur currently has only 13 active markets with a lock-up value of less than $ 3 million. Its most promising startup closed in July of this year after only six months of operation (to be fair, in the first quarter of this year (Augur v2 was predictable before). The 1.0 version of TCRs is an undeveloped junk project. No one has been innovative in this area since 2017, and our curated market design originally proposed for Messari's token registration, when it finally hits the market, looks more like a DAO / working token. ICOs / IEO are dying and will soon fall like a lame horse. (We just need to go through the catastrophic private SAFT liquidation phase like this spring) I am still excited about the development of the concept of "persistent organization" because this looks like the "Uniswap" version of this year's ICO (please continue Follow projects like Fairmint).

(# 彬 律 动 BlockBeats Note: Fairmint is designed to allow investors to invest in organizations that they trust, and to build a new alliance between entrepreneurs and the community and integrate into it)