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What makes DeFi today

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DeFi is the verification of blockchain in financial scenarios. Its germination, exploration, dormancy, outbreak, and calm reflect the important value of public chain infrastructure and application innovation in application scenarios.

Original title: "Blockchain 5 years laying foundation for DeFi is surging"

Original source: "Hive Finance News"

Market Investment Investors' perception of "DeFi is cool" may come from the performance of mining revenue and the decline in DeFi asset prices. Indeed, DeFi is not as popular as it was three months ago, and the degree of topicality has also decreased as the rate of return has decreased.

However, a data that cannot be ignored is that the total value of assets locked in various DeFi protocols (Total Value Locked or TVL) has not experienced a large-scale loss , but remained high. On OKLink, this data is 13.2 billion US dollars, and there are still a lot of funds willing to stay in this market.

Hundreds of agreements and assets, tens of billions of lock-up value and total market value... Although these peak DeFi performances occurred in 2020, they are The cumulative result of continuous exploration and growth of the blockchain network and the decentralized protocol built on it in the past 5 years.

The current top DeFi applications Uniswap, Maker, Aave, and Compound are not new products in 2020. The origin of Maker can even be traced back to 2015. At that time, the word "DeFi" had not yet appeared to describe the commonality of this type of application. But experiments to put financial scenarios on decentralized networks have already begun.

It has gone through the exploration period from 2015 to 2017, and completed the evolution from conceptualization to testing applications, stable currency (DAI), transaction (IDEX), The three major scenarios of lending (ETHLend) are covered.

In the period from 2018 to 2019, when the encrypted asset market was in a bull-to-bear phase, financial applications began to shift from the generalized DApp category to specialized areas. The concept of DeFi was proposed, some applications began to have users and funds, synthetic assets (Havven, the predecessor of Synthetix), on-chain custody (Newdex), and automatic market-making (Balancer), these key decentralized financial infrastructure designs emerged.

In 2020, the agreement "Lego" and liquidity mining finally attracted the market's attention to DeFi. The wealth effect made many classical investors in the field of encrypted assets, Having to hold funds and stay up all night to become a "DeFi farmer", the locked-up funds and user scale have entered an unprecedented stage.

DeFi is the verification of the blockchain in the financial scene. Its germination, exploration, dormancy, outbreak, and calm reflect the public chain infrastructure and application innovation in the application The important value in the scene is the concentration of decentralization, transparency, and openness, these blockchain elements, and it is also a footnote to the ups and downs of the industry that the old ones will be eliminated and the new ones need to be verified urgently.

Development as a Blockchain Part of history, DeFi deserves to be recorded. Honeycomb Finance will launch the "DeFi History" topic, review the growth experience of DeFi, and look forward to its next "five years".

Back to stability

We have cooperated with DeFi protocol developers, wallet service providers and other industry insiders When talking about the current status of DeFi, none of them thought that DeFi was "cool", and gave a more neutral description-DeFi has entered a period of stable development.

This kind of stability includes the state of the annualized rate of return reduction of various DeFi protocols, and also includes that the total lock-up value in the market has not been lost.

The yield change of the top ten projects

Among the data collected by Tokenterminal, among the top ten projects by market capitalization, the 30-day annualized rate of return change In one indicator, only Compound and MakerDAO have maintained a positive value, and the rest of the agreements have experienced a reduction of more than 35%; there are also more negative value agreements on the 7th annualized rate of return than positive value agreements.

Compared with the annualized rate of return of "overall floating green" that was dozens of times or hundreds of times three months ago, the crazy period has ended; 24 hours The positive and negative values of annualized yield fluctuations have returned to the range of single digits, and the calm period of DeFi investment is coming to the market.

The rate of return is declining, but the TVL of the DeFi market remains high. OKLink data shows that so far, the total lock-up value of DeFi is 13.2 billion US dollars, which is almost the same as the historical high of 13.7 billion US dollars at the end of September; the state of DeFi's asset scale of 10 billion and market value of 10 billion has continued Almost 2 months.

“It’s too early to say it’s cold.” Wen Hao, the founder of Bitpie Wallet, believes that although the currency prices and mining income of various DeFi assets have already It is not as good as before, but DeFi has entered a stable period, and value assets and users have a new stage of retention.

Indeed, if the time is stretched, the last flat TVL curve can only be traced back to the end of 2017 on OKLink, with a data of 14.6 million US dollars; earlier records DeFi TVL's data platform Defipulse can only be pushed to August 2017, and the displayed TVL is only $4.

Today, TVL's top three trading protocols Uniswap, mortgage lending protocol Maker, and anchor asset WBTC have locked 49.36% of the value of the entire DeFi market. That is only 7 billion US dollars, accounting for half of the DeFi market. In addition, in addition to the aforementioned three protocols, there are Aave, Curve, and Compound with a locked value of more than US$1 billion.

It can be seen from the OKLink data that anchor assets, mortgage lending, and transactions are the DeFi scenarios that current assets are most willing to retain. This is not difficult to understand, just as in the real world, currency, transactions, and lending are the most frequently used scenarios in the financial world.

Among the top ten protocols with the total locked value, only Yean.Finance, which ranks eighth, is an application born this year, and the rest are old brands The protocol, of which Maker was first initiated, originated in 2015.

It was also at that time that some geeks began to explore with a bold idea-whether the financial scenarios in the real world can be decentralized way to run. At that time, no one used DeFi to define this kind of imagination.

Anonymous Era

Decentralized finance was not barren in the "Origin of Species". At least the Bitcoin network had been running stably for 6 years at that point. This peer-to-peer transaction system carries the mission of "Electronic Cash Revolution". In the view of Wen Hao, the founder of Bitcoin Wallet, Bitcoin is the earliest DeFi.

When MakerDAO and developers around the world began to iterate the first version of code, architecture and documentation in 2015, let alone the concept of DeFi, "block "Chain" has not yet been refined with these three words, and a distributed infrastructure "public chain" that does not rely on central services has not yet appeared. And Maker, under the operation of DAO (Decentralized Organization), began to conceive some kind of stable asset system.

In Wen Hao’s impression, if we look back at 2015, everything in DeFi is conceptual and paper, “It’s still on paper and in the experimental stage, We can’t talk about application experience, let alone user scale.” If we have to talk about use cases, Wen Hao mentioned the operation of DAO as an organizational form and the emergence of some asset-backed platforms, “such as BitShares.”

The BitShareBlockchain he mentioned is the open source network software led by EOS founder Daniel Larmier. It was proposed to use the delegated proof algorithm to construct a point-to-point distributed stock ledger account and network, and a mature version was available in 2015. BitShare aims at enterprise-level infrastructure, but eventually fell due to reasons such as immature market, limited technical architecture, and scarcity of application developers.

For a community like MakerDAO, it is very important to find an infrastructure that can be applied at that time. The ethereum network went live in July 2015, giving application developers a starting point. In the two years of continuous iteration after the fork, Ethereum has brought the most basic support for the birth of decentralized applications.

IDEX and Ede are the early attempts of decentralized transactions on Ethereum. The succession of these two applications has also brought about a huge change in the operating mode. IDEX, which was born in 2016, has a centralized matching engine, that is, it adopts the order book model often mentioned in the industry. Assets are matched off-chain and liquidated on-chain; Centralization and encrypted signature transactions, trying to allow users to use it safely anywhere in the world without logging in.

Not only transaction scenarios, lending applications also began to be generated on Ethereum in 2017. ETHLend is the most well-known project, which was later renamed Aave , The current lock-up volume ranks among the top five protocols. ETHLend created an open source non-custodial protocol that allows users to borrow assets through the protocol, and depositors can earn interest in the protocol.

In the same year, MakerDAO finally appeared in the form of an application, which generated tokens by mortgaging encrypted assets, and produced a stable currency DAI that can be anchored 1:1 with the US dollar. Of course, at that time, the only mortgage assets it could support were ETH.

Although DeFi has not yet The way the concept is recognized, but during the exploration period, the scenarios of stable currency, lending, and trading have all appeared between 2015 and 2017. However, in the bright moments of BTC and ICO at the end of 2017, these applications were still dim on Ethereum. They grew and tried silently, and entered another stage.

Ready to go

Pan Chao was running the beta version of the Maker protocol in 2017 Those who joined the "organization" during the period, in 2018, the turning point came quietly, "In my impression, Maker was at that time, and the amount of asset mortgages and users both experienced large-scale growth."

Judging from the changes in the funds of the DeFi market TVL, the curve in 2018 began to fluctuate. At the beginning of the year, it increased to 50 million US dollars, and by the end of the year, nearly 300 million US dollars of funds had entered the DeFi agreement middle.

The change of the total lock-up amount in the DeFi market in the past 2 years

In the first half of 2018, it was the starting point of the crypto asset bull market turning to a bear market Chain blossom stage. There is no longer only Ethereum in the market. A large number of public chains under the banner of Ethereum have "raised up". Various public chain assets are taking advantage of the popularity of ICO and pouring into centralized exchanges that are robbing the currency spot trading market. in.

But later, the public chain that finally went from the white paper to the landing was lacklustre. It is the emergence of the EOS system, and its advantages of high speed and low cost are very obvious compared with Ethereum.

As the market is optimistic about EOS, a large number of DApps have begun to be built on EOS. Gambling applications are the most outstanding on this network, and there are a few similar applications Appeared on Ethereum.

When DApp entered the market field of vision, some curious users began to try to use decentralized applications. Can there be references for the application of the DApp.” Da Yu (pseudonym), who was both a player and a programmer who participated in the DApp experience at the time, believed that the group of people who were familiar with on-chain operations and transactions on the DApp, due to their skilled operation and quick understanding, Became the first person to enjoy the DeFi liquidity mining bonus in the summer of 2020.

As various applications on EOS generate a variety of assets, users' demand for transaction realization has greatly increased. Newdex was born two months after the EOS system was launched, becoming the first decentralized exchange built on the public chain. Its daily trading volume once accounted for more than 80% of the market, and even surpassed IDEX on Ethereum, becoming the DEX with the largest trading volume in the world.

On Ethereum, which is one step ahead in terms of richness of application scenarios, many popular DeFi protocols were launched in 2018, including Compound, Balancer and Uniswap. The emergence of the anchor asset WBTC in 2019 allowed the popular cross-chain concept to be resolved at the level of asset circulation, and the Ethereum version of BTC was realized.

The concept of DeFi really appeared in 2018, and it was first proposed on Medium. On August 31 of that year, a blog titled "Announcing De.Fi, A Community for Decentralized Finance Platforms" officially launched the concept of DeFi (Decentralized Finance/Open Finance). The author Brendan Forster is a lending product Co-founder of Dharma.

He believes that DeFi should be an open project community that meets the following conditions - the project is built on a decentralized blockchain, and the project is used in the financial industry , the code is open source, and there is a robust developer platform.

From the perspective of later application development, the conditions summarized by Brendan Forster are the characteristics of many DeFi protocols today, whether it is the generation of stable coins, asset transactions, lending , or financial management and derivatives, the applications including these financial scenarios are built in the decentralized network, they are transparent enough to see the addresses of assets and transactions, the geek organization becomes the backing of the protocol technology, and bears the responsibility of protocol security , to follow the results of community voting when upgrading the protocol.

At the beginning of this year, the loopholes in some protocols caused security incidents due to "cross-overlay". On the other hand, it is the composability of DeFi protocols It provides a wide range of space for asset flow, which is summarized by industry insiders as the "Lego" feature of DeFi.

From 2015 to 2019, the exploration of the DeFi protocol from the unknown era to the maturity of the application scenarios have paved the way for its outbreak in June 2020. People often think that the wave of liquidity mining launched by Compound in June was the starting point of the DeFi explosion, but in Pan Chao’s view, it was just a ****, “Almost every year, DeFi has different performances. It’s just that it has never broken out of the niche circle, and the wealth effect finally made it out of the circle.”

Among the DeFi historical participants we interviewed, everyone They all mentioned that they expected DeFi to stand out from the encirclement, "but they didn't expect everything to come so quickly."

The impact of this acceleration on every participant in the market is very significant, manifested in the agreement mining rate of return and lock-up value. Now, with these two data falling and then stabilizing, DeFi has entered the next cycle of steady development.

The past time has shown us the development path and direction of DeFi today. What will its next rise bring?

Pan Chao gave a very calm answer, "When no one always talks about the DeFi concept and sends it popular, it will really become a tool that everyone is used to. Only then will the real success of DeFi be achieved.”