Babbitt column | Decentralized trading, stablecoin, DeFi "love each other"

In our impression, decentralized trading, stable currency, and Defi Finance should be three different concepts, and they are not related to each other. But in fact it is not the case. The three of them have a close relationship. It can be said that they are linked one by one. The development of one business promotes the development of another business. At the same time, it may be difficult to develop a single business separately. Success, I think the reason why these three have not developed and grown at present may also lie in this.

The current status quo is: Although many people are mentioning decentralized transactions every day, creating better stablecoins, and mentioning the development of Defi Finance, the fact is that centralized transactions occupy an absolute leading position, and people have no incentive to switch to decentralized The fact is that the stablecoin USDT occupies 80 ~ 90% of the market, and its network effect is too strong. Even if people are worried, they will not easily switch to other stablecoins; the fact is Defi finance is either not fully functional, or has insufficient influence, or the attractiveness of interests is not enough. People have no incentive to specifically transfer assets from the exchange to develop a Defi financial business.

From this point of view, this seems to be an endless loop, how should this game be broken?

Although it looks like an endless loop, there are currently two biggest concerns in the centralized market: one is that the exchange is stolen by hackers, and the other is that the stablecoin is thundering. Especially the theft of exchanges is something that will inevitably happen after a period of time, and the thunder of stablecoins is also a matter of great concern in the market. Perhaps the breakthrough point of the break is in these two places that people are most worried about.

1. Decentralized transactions

Let's start with decentralized transactions.

As we all know, transactions are the most active and high-frequency business in the blockchain industry. According to the theory of "high frequency band dynamic and low frequency" developed by the Internet, a centralized exchange with huge traffic can easily do other businesses, such as wallet, stablecoin, Defi, etc. Finance and so on. At present, several major exchanges have basically involved all businesses. Many exchanges have their own wallets, have issued their own stablecoins, and are doing follow-up Defi Finance. In contrast, it is much more difficult to switch from a low-frequency business to a high-frequency business. It is difficult to transform a business that focuses on Defi financial transactions to transform the transaction business.

Therefore, trading is a main battlefield, and whoever seizes the main battlefield of trading will take the initiative .

At present, the transaction is basically monopolized by centralized exchanges. These centralized exchanges have done a good job of trading, there are many currencies on the line, the depth is sufficient, and they are also silky to use. Various financial products, including options, contracts, leverage, etc. If you are familiar with a centralized exchange, then it is easy for you to have a path dependence on it, making it difficult for you to switch to other exchanges, not to mention decentralized exchanges that are more complicated to operate.

Under this premise, in order to develop decentralized trading, the first thing is to have a solid internal strength, that is, your product, function, depth, variety, etc. should be no less than that of a centralized exchange, and it must be used enough. Silky, this is the premise of everything. Even with this premise, there will not necessarily be many people who will switch from centralized transactions to decentralized transactions in the early stage, because it is unnecessary and because it is too difficult to change operating habits.

Therefore, this time still needs external force to promote. This external force is generally an event such as exchange theft, and it is the kind of large-scale exchange theft, and it is similar to the Mentougou incident of that year, which has a very far-reaching impact and involves a large number of people. This kind of exchange security incident is not likely to happen, but it will definitely happen every year. Only when such large-scale security incidents occur will people be encouraged to start thinking about the fundamental issues of asset security. Therefore, there may be a group of victims, prophets, pioneers, or a group of people with relatively large asset numbers. At this time, asset security has become a necessity for them, so they decided to transfer assets to a more secure decentralized exchange, even if the transaction They are not as functional as centralized exchanges. They also recognize it. If it is a big deal, they will not trade. And this time is the turning point of things.

It may take some time before this day, and this period is also the best time for the rapid development of decentralized exchanges. Eventually, when these people started to use decentralized exchanges, decentralized exchanges may have slowly developed, various functions have begun to be improved, trading efficiency has also improved, and various varieties are also very good. Enriched, basically able to meet daily transaction needs. And this is far beyond their imagination, so they decided to stay and play in the decentralized exchange, this group of people became the basic plate of the entire decentralized transaction.

The decentralized exchange itself also has some special mechanisms that allow multiple parties to enjoy the benefits. This group of people only feel the beauty of decentralized transactions when they develop the habit of using decentralized transactions, and at the same time they can ensure the safety of funds and at the same time they can start to make profits from participating in decentralized transactions. At this time, the user experience was really better, so they began to publicize and began to attract more people to enter the market. As more and more people enter the market, the assets deposited in the decentralized exchange will also increase. The more, this time will enter the next stage.

Second, stablecoins

This stage is called stablecoin.

If the transaction is the most high-frequency business in the blockchain industry, then the stable currency is the commanding height of the digital currency industry.

In my previous statement: the role of stablecoin is not only to solve problems such as the OTC gold channel for digital assets, it should even be said that it is not a simple digital currency. Stablecoin is at the core of the entire financial system: it is connected to traditional finance at one end, to digital assets at the other end, to assets and to payments at the other end, and to the chain and off-chain.

However, it is USDT that currently occupies the absolute leading position in the stable currency market. USDT itself is a centralized organization, which is essentially a reflection of the US dollar in the world of digital currencies. USDT is a freaky existence in the blockchain world. The market has a lot of doubts and speculations about it, and Tether does not seem to care about the market's doubts, and has no intention to clarify, so the problem of USDT has become suspended throughout In the industry's "Sword of Damocles", some people describe it as a "castle on a sand dune". Some people say it is more direct. For example, Jiang Zhuoerjiang always thinks that USDT will definitely explode one day. It is only a matter of time. Do n’t store assets in USDT.

In addition, the centralized organization such as USDT is not very safe. In case the US government sees it as unsightly, and wants to close it, it only needs to find a reason, "capital outflow", "tax evasion", "illegal issuance" "Securities" and so on, there are many convictions, then it really means to close.

Stable coins are so important, and current stable coins are so unsatisfactory, so there is an opportunity for decentralized stable coins.

At present, there are already some decentralized stable coins on the market, but these stable coins are either not secure enough by their own mechanisms, or their scale is not large enough, their market share is not large enough, and their influence is not large enough. Because it is not enough to simply develop a stablecoin itself, because the stablecoin needs to rely on credit and consensus. If the credit and consensus of a stablecoin is not enough, it is difficult to develop it. In the case where the opportunity has been lost, It is difficult for other non-governmental stablecoins to exist and develop independently. They need to be developed on an established basis to have the possibility of success , and companies based on this basis do not.

However, we just talked about decentralized transactions. If the decentralized transaction can be done and the transaction volume can be done, then this foundation exists. When the flow and assets accumulated in the decentralized transaction are increasing, if the mechanism design of the decentralized stablecoin itself is sufficiently complete, then there is a chance to generate an efficient stablecoin system. There are two most important factors of the stablecoin system: the first is the size of the assets behind you, and the second is your own algorithm and mechanism, that is, how is your ability to resist extreme risks? If this mechanism can resist the first 2 to 3 extreme market fluctuations in the digital currency market, then your system may be accepted by more people. If you cannot resist the first 2 to 3 times, then the market is basically not Will give you another chance.

If it occupies the strategic high ground of stablecoins, then many things will get through naturally. At this time, the stablecoin system can not only feed back decentralized transactions, but also extend to the more high-frequency areas of offline payment.

3. Defi Finance

It is also very difficult to develop Defi Finance alone, because there is not enough flow foundation, asset accumulation, good stable currency support, and insufficient credit and consensus. Many individually developed Defi financial businesses will soon meet the ceiling. This is the current embarrassing situation facing the Defi financial industry.

For Defi Finance to develop, it needs to be built on the basis of other higher-frequency businesses, on the basis of the precipitation of a large number of existing assets, and on a reliable stable currency system.

According to our deduction, if decentralized transactions can slowly become popular, there will be more and more accumulated and precipitated funds. After more and more precipitated funds, the collateral generation of decentralized stable coins will have a foundation With the flow of decentralized transactions and reliable stablecoins, the development of Defi Financial Business is much easier, and Defi Finance is a place that truly reflects the advantages of decentralized transactions, which cannot be done by centralized exchanges. field. With Defi Finance, it is possible for decentralized transactions to go hand-in-hand with centralized transactions, or even to overtake them.

4. Conclusion

1. Today, focusing on centralized transactions, decentralized transactions require special opportunities to develop on a large scale;

2. After the development of decentralized transactions, the accumulated and precipitated assets will produce a better decentralized stable currency system, of course, this also depends on the artificial system design;

3. When the decentralized transaction and stablecoin system are in operation, the Defi Finance behind will play a huge advantage (this is an advantage that cannot be achieved by centralized transactions), so as to feed back the decentralized transaction and stablecoin, and really let the block Chain trading has entered the era of decentralization.