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From the core of DeFi development, take you to understand DeFi 2.0

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The industry did not reconsider why DeFi1.0 did not erupt again

原文标题：《我看 DeFi:什么才是 2.0？》

Original author: AH Kong, Star Value Investment

The Crypto industry's financing transaction numbers for the first week of March are out.

I looked at 20 deals this week, close to $1.34 billion. To be honest, such figures are not surprising. Once an institution's investment strategy is determined, it will generally continue to be the same unless major industry changes occur.

Apart from Electric Capital's $1 billion investment fund and Token fund, the largest transaction in the primary market came from A16Z's $70 million investment in Lido (DeFi pledge platform). In addition, more than $7 million of investment is concentrated in DeFi, CEX, layer1 and web3.0.

DeFi2.0 and decentralized finance are what I want to talk about today.

After DeFisummer passed, the decline of the whole DeFi sector is very obvious, whether it is The DEX leader Uniswap, the loan leader AAVE, the synthetic asset leader SNX, they show a degree of tension comparable to EOS in the previous era.

So much so that many people began to abandon the DeFi genre, believing that the "life cycle" of DeFi had come to an end. In my opinion, DeFi, like GameFi, needs to enter the 2.0 era to achieve explosive growth that far exceeds that of AMM.

However, the current problem is that, based on the unique technical attributes of the Crypto industry, many discussions on DeFi2.0 are limited by the technical boundaries, and only the problems with DeFi1.0 are constantly optimized, far from understanding the core problems in the development of DeFi.

For example, the outlook for DeFi2.0 mainly focuses on how to release the value of the pledged capital, avoid the risks caused by the smart contract, and automatic repayment.

But one thing we need to understand is,The rapid development of any industry is not due to how much profit can be obtained in the industry, but based on the improvement of life and the status quo, the continuous expansion of the industry brings more profit.

However, the current discussion about DeFi2.0 in the industry is always about how to protect the interests of the participants and avoid the risks involved, instead of thinking about why the DeFi2.0 does not erupt again, or how to change the TVL capital for DeFi2.0 into the TVL capital for which there is real demand.

当然，在 SPELL 利用 yvWETH、yvUSDC、yvYFI、yvUSDT 等有息 Token (ibTKN) 作为抵押品来借入与美元挂钩的 MIM（Magic Internet Money）后，确实让用户可以利用最小风险来放大杠杆，但本质上的问题仍旧没有解决。

那就是协议的价值被 Token 的市值所限制的问题。

As I pointed out in "I See Synthetix: Gatekeepers of a Great Age" why synthetic assets haven't made significant progress:

「还有一个问题就是资产规模。合成资产普遍是超额抵押，这就直接限制了 SNX 的规模。想想看，合成资产规模小于 Token 市值显然是让投资者不大能接受的事。目前比较好的解决办法可能就是增加优质的多抵押品，但对于 SNX 来说，全局债务池的设定反而限制了对多抵押品的增加，倒不如直接扩大债务池更为适用。」

The SNX problem is also a problem with all DeFi1.0 projects, that is, the limit on the asset scale brought about by over-mortgage. Therefore, before this problem is solved, we repeatedly talk about how to solve the technical problems with defiant 1.0, which are not called DeFi1.0.

It's called DeFi1.01----- and it never becomes 2.0

We can use the most simple emotion to think about: what is the lending platform? To borrow money. Why borrow money? Because I don't have any money.

Okay, so if I borrowed because I didn't have money, why would I borrow with an excess mortgage? Now, the prevailing mortgage rate is 150%, so if I have 150 ETH, why would I want to mortgage those 150 ETH and only lend out 100 ETH?

Therefore, in terms of demand, there are only two kinds of users targeted at DeFi system projects, one is speculators with high APY, and the other is miners or large households.

Their logic is that they are optimistic about ETH, but now there may be another very certain project that needs money, ETH also does not want to sell, what to do? The lending platform is a good choice, just need to mortgage into ETH, then lend USDT or other stablecoins, and use the investment income to pay the interest.

But the philosophical difficulty of overmortgaging is very high indeed. The slogan of the Internet age is "No one knows you're a dog", and in an unregulated, decentralized world, most people are more interested in profits than in moral boundaries.

Therefore, no matter AAVE or SNX leading projects, they cannot and cannot do things that challenge humanity ------ because in the chain world, there is no established credit system and adequate punishment mechanism.

The contours of DeFi2.0 are very clear:That is to establish a credit system and punishment mechanism, and on this basis can make DeFi agreement from excess mortgage to insufficient mortgage, so as to realize the explosion of TVL capital scale and users.

From this point of view, it is true that some people propose to solve the problem of credit mechanism by mapping information from chain to chain. Unfortunately, this is the biggest "political incorrectness" for cryptographers, because once KYC is bound, it cannot be decentralized or anonymous.

The direction is right, but the approach may need to be discussed.

Many people are obsessed with the on-chain of assets and the mapping of reality to the crypto world. But they don't seem to have thought about forming systems that are self-consistent from the inside, right? ------- In my opinion, the latter seems more likely to succeed.

I learned a lot from the NFT avatar explosion.

We can see the crypto community in the pursuit of BAYC, Cryptopunks fanatics, but this is very ridiculous in the eyes of outsiders ------ millions to buy a head is not the brain. Similarly, in the real world of highly valuable art, antiques, even after the chain into NFT, it is still worthless.

The biggest problem lies in the conflict of values. Van Gogh's works are artistic and scarce, but more value comes from the cultural value brought by historical narration ------ this value cannot be reflected in the encrypted world.

Similarly, the cultural value accumulated in the crypto world by NFT avatars such as BAYC and Cryptopunks cannot be transferred to the real world.

So how do traditional, centralised systems of credit and regulation fit into a crypto world? Therefore, I believe that the credit system and "legal system" in the cryptographic world must be endogenous and gradually realized with the development of NFT and DAO.

For example, we can build a new credit system around DID, so that the cost of obtaining DID in the encrypted world is greater than the cost of doing evil. Meanwhile, we need to build a "judicial system" around DID.

The practice of these assumptions means that the "authentication" of DID needs to be unique, and users need fingerprint, iris and voice to complete the "character link".

In this series of development, our investment opportunities become very clear: DID, NFT, WEB3.0, hardware facilities and so on, are super explosive track. Now we can focus on projects in those areas ahead of time.

DeFi2.0, which is formally introduced after the credit system and judicial system are established through DID, makes people get exaggerated return on investment.

This may be a bit of a mystery, but I'll take AAVE as an example. Even in China, the traditional P2P lending industry has accumulated a capital scale of 1 trillion yuan, and the Matthew Effect tells us that the industry leader will occupy more than 50% of the market size.

In other words, if AAVE can realize the insufficient mortgage, then AAVE will absorb 1 trillion *50% of the capital scale, and the market value will also reach 500 billion ------- Now the market value of AAVE can be as much as 10 billion, there is a space of 50 times.

So can AAVE continue to hold? You'll have your own answers.

That's cognition, that's investment,

Only in this way can you find the ladders that allow you to climb the ladder.