Babbitt Column | Traffic Wars or Ignition Blockchain Technology Innovation (1): When the exchange meets Defi

“Our dinner is not from the blessings of the butchers, winemakers and bakers, but from their concerns about their own interests.”

–Adam Smith

I. Innovative cemetery: the digital currency industry in the comfort zone

As an industry that has been crowned with the title of “One-day currency, one-year in the world”, the blockchain field that has emerged in recent years has become an unspeakable one in the industry – that is, the speed of its technology has not reached people's expectations. If you take the blockchain technology article two years ago, it is likely that it will not give people an outdated feeling, such as lightning network and isolation testimony. There are many reasons for this: the limitations of technology itself and insufficient investment can be considered important factors. In this case, there is a reason that is often overlooked by the outside world, but it often plays a subtle role – that is, competition.

Regarding the importance of competition, there is a saying in the neighborhood – "People are forced out." Throughout history, it is not difficult to find that many modern and innovative technologies are born in fierce competition. New technologies and models such as aircraft, chemicals, and production process management were born during World War I. Radar, missiles, sonar, nuclear power, and computers were intensively present during World War II. In the era of peace, the development of technology is often based on the above-mentioned technological breakthroughs, relatively slow improvement, such as military to civilian use. Even in the blockchain field, such cases are not uncommon. For example, platform currency, exchange public chain, fee refund and other business model innovations were born during the fierce confrontation of the three major exchanges last year (previously the exchange played quite monotonously).

• After a year and a half of investigation, the SEC started work on Kik.
• Interview with Babbitt | FT public chain main online line, five characteristics are doing these three things?
• Bitcoin will not pick up everyone on the bus: stepping into the air is a daily life

Of course, from another point of view, the above sentence can be completely understood from the reverse direction – "Without persecution, people's potential will not be able to play out." The development of the blockchain field in recent years is a typical case of this view. Because the market value of the industry has grown extremely rapidly, practitioners can earn a lot of money by eating incremental markets. The so-called "currency earning" is a description of the industry's strong ability to absorb gold during this period.

However, another neglected problem brought about by “lying money” is that since the industry can rely on the existing model to lay down and make money, what motivation does the practitioner have to work hard to make innovative breakthroughs?

Thus, as mentioned earlier, the blockchain industry in the comfort zone has almost become a variety of innovative cemeteries: technological breakthroughs are slow, and the old-fashioned topics are ridiculous (such as various sidechain technologies). Business innovation seems to be numerous, but in reality there are thousands of people behind it (such as various currency models that have arisen in recent years). However, if one of the biggest features of the contemporary technology industry is that no one can be in an absolutely safe position for a long time. Even if a type of product has a monopoly in the segment where it is located, it is likely to face a blow from other species or ecology. For example, in the Internet industry, Baidu is a general-purpose search engine that faces competition from various APPs and its internal search engines. Although public transportation such as taxis and buses have achieved a monopoly through franchising, they are faced with Decentralized sharing of traffic competition; while the network car represented by Didi is unified with the vertical track of the network car, but also faces competition from shared bicycles.

In a similar situation, it also appeared in the undercurrent blockchain industry. In the case of the bear market and the shrinking market, the latecomers who were unwilling to be restrained began to launch a secret of cross-ecological to the industry overlord. Attack, trying to break this seemingly solidified industry landscape. In this series of articles, the author will look at the competition in the digital asset industry to see how it will stimulate the related technologies.

Second, information opacity + commercial monopoly: the two major business magic weapons

Let's take a look at the situation of this competition. The defensive side of this competition, the aforementioned “industry hegemon”, is undoubtedly the exchange known as the “top of the food chain”. By making the token transaction into a so-called "just-needed" like real estate, and at the same time, it is the entrance to the industry. It can be said that it has mastered the "skill and power" of the blockchain project. But the problem is that, like almost all products related to the blockchain (such as the reading volume of the currency media and the trading volume of the market software), the exchange is currently facing a problem: the data is not true. Due to the opaque nature of the centralized platform, the outside world simply has no way of knowing the actual transaction amount.

According to a recent report released by a certain media, 90% of the exchanges are “brushed” out. The price of this "high transaction volume" is that the trading platform is self-respecting, charging the project party a high-cost fee, and charging investors high fees and money. According to statistics, the proportion of fee income of some digital currency exchanges has reached several times, even ten times and dozens of times, of traditional stock exchanges. This phenomenon makes the project side and investors helpless but powerless. In that sentence, it is:

"We know they are lying, they know they are lying, they know that we know they are lying, we know they know that we know they are lying, but they are still lying."

Why does the exchange dare to commit crimes in an unscrupulous manner when the “brushing volume” has become an open secret in the industry? In addition to technical opacity, there is another factor that many people have not mentioned: that is the commercial monopoly.

In the view of the exchange, it is currently the largest traffic portal in the blockchain industry, and the relevant institutions are still in a state of ignorance of this block. No matter what kind of behavior they make, they are not commercial or policy. There will be restrictions. Anyway, other institutions in this industry can't change the field of exchanges. Second and third-tier exchanges can't make a front-line exchange. If so, why not make full use of your leading edge to make a profit? Therefore, under such circumstances, we have seen the crazy cheating behavior of the exchange "sweeping + raising prices". After all, in the latter view, the price-performance ratio of this "business growth model" is very high.

Strictly speaking, the exchange has not left no way for itself to prevent the outside world from "counting after the fall." For example, because of the fear of decentralized exchanges to subvert themselves, many platforms have already invested in, or even personally participated in the development of DEX, hoping to hedge the risks arising from the dispersion of traffic. However, as mentioned earlier: If there is any characteristic of commercial competition in this era, it is that your competitors are likely to come from other species in other fields that you cannot see.

The blockchain industry is also true – the potential shaken of dollar status is not due to the centralized currency such as the yen and the pound, but to the decentralized bitcoin; the decline in the business of the old miners is not due to other performance A strong mining machine is shrinking from the rise of other consensus-based digital currencies. For the currency traffic, that is, the digital currency exchange, the potential opponents that pose the greatest threat at present are not from the exchanges of other startups, or even from traditional financial institutions like Bakkt. The founding exchange, but another species that people had not expected before – that is the digital lending platform.

Third, the rise of Defi and the fear of the exchange: the transfer of traffic as a title

As a new application for detonating the word "Defi" in the circle, the operating principle of the digital lending platform is well known: the mortgagor pays a certain deposit to the platform and obtains a certain percentage of cash-stable coins. If the mortgage is lower than a certain percentage, the platform Forced to close the position. During the bear market last year, the scale of this business developed rapidly. Since there is no authoritative data statistics on this track, the author has extracted several enterprise-level data from the public channel for your reference:

● In December 2018, the Gate.io exchange announced that its average annualized rate of return on the platform market has soared to 36%, while BCH's annualized earnings have soared to over 70%.

● February 2019 data show that Genesis Global Trading, a subsidiary of Genesis Capital, issued a $700 million virtual asset loan between March 2018 and January 2019. According to CoinMarketCap's currency market value on March 4th, Genesis ranked 15th in less than one year's loan volume, equivalent to 720 million US dollars in market value of Dash.

● In March 2019, some media broke the news that the digital project MakerDAO mortgage assets of the head project had reached 2.16 million ETH.

It stands to reason that in the magical industry where all the information in the currency circle is true and false, people have long been numb and dull for various astronomical figures. However, the characteristics of digital lending are: Because of the rise of this batch of projects in the past two years, many of them have realized the decentralized lending of the capital circulation record, so whether it is the number of deposits or the transfer record, it is all real. The data on the chain is completely different from that of the satellite. This has made many companies look at it.

Faced with these days of data, some people are beginning to realize that the digital lending business is not only worth mentioning the amount of data of the business itself, but it is even possible to change the current digital asset industry, "only the exchange is the leader" The biggest pattern. The key to change is a vocabulary that people are familiar with: traffic.

As we all know, the profit model that digital currency exchanges rely on for survival mainly includes the following: charging transaction fees, charging the project party fee, and some advertising fees, and there may be some other expenses in the future. But no matter what kind of income model, they have only one foundation – that is the user's attention resources. As long as this kind of resources are in hand, the exchange wants to carry out any business is a matter of hand.

Why have so many attempts to challenge the three major exchanges have failed? The essential reason is that the incompetent can't play new tricks, and it is difficult to compete people's attention resources from the three majors through simple trading business. Even if it is a bit of "exclusive micro-innovation", it is difficult to cover the cost of large-scale migration of assets.

However, the emergence of digital lending has shaken the position of the exchange from another angle. It does not directly compete with the original giants in the transaction business. Instead, it draws a salary and directly attacks the exchange’s foothold. The root of this – traffic. In this regard, the impact of digital lending is embodied in two aspects: First, in terms of traffic figures, during the bear market, investors' trading intentions have declined, and the desire to mortgage lending has risen. Second, in terms of the authenticity of the traffic, the transaction volume of the exchange has been questioned by people, and the mortgage lending is more credible because of the high cost of the deposit and the cost of fraud. In contrast to this “one liter, one drop, one true one fake”, some project parties have begun to consider tilting the promotion budget to the digital lending platform rather than the traditional industry traffic channels such as exchanges. The “upstream of the food chain” role of the exchange has shown signs of loosening.

What is more noteworthy is that for many people at the beginning of the year, the trade-off between digital lending and exchanges may continue for quite some time. Unlike the bull market where the exchange's business volume is highly dependent on the volume of transactions, the survival soil for digital lending is often a bear market that is reluctant to sell. Financial markets generally have the characteristics of “short short bears”, that is to say, in terms of the sustainability of development, exchanges have a inherent disadvantage compared with digital borrowing. At least at the beginning of the year, the expert advisory group of the first-line exchanges was not very optimistic about the market.

For example, a veteran in the industry who has all the intimate relationship with the head declares that the future price of Bitcoin will be between 3,000 and 5,000 US dollars for a long time. Under such circumstances, the transactions at that time are all very strong. The reason is that digital lending has an innate advantage over itself. If you don't put in some action, don't talk about the location of the traffic entrance. You can even worry about the future of the transaction. After all, the opening threshold of the exchange has been greatly reduced. As long as the traffic is at hand, the transition is not difficult. Under such circumstances, the exchange began to plan a series of actions to try to recapture traffic from the lending platform.

The exchanges that began to plan traffic counterattacks did not realize that they might inadvertently open up a critical time node—as the author at the beginning said, competition often stimulates innovation in various technologies and business models, and from later In terms of the situation, a series of model innovations in the digital currency industry this year, including subsequent IEOs, quantitative admissions, and even future decentralized applications and decentralized transactions, have indeed benefited or may benefit from This attention resource is vying for the battle of traffic ignited, the specific situation and the outlook for the future, the author will elaborate on you in the next article.

Author: Sun vice president

We will continue to update Blocking; if you have any questions or suggestions, please contact us!