I have been meaning to write this for quite some time now and hopefully it will mark a generational DeFi bottom
But in last few months I became quite disillusioned by the state of DeFi, not in a sense bearish on tokens, but in a sense that it destroys more value than creates:
But in last few months I became quite disillusioned by the state of DeFi, not in a sense bearish on tokens, but in a sense that it destroys more value than creates:
The real innovation in DeFi happened 4 years ago:
1. Permissionless swaps and bootstrapping of liquidity (Uniswap)
2. Simple money markets for permissionless lending, borrowing, leverage (Compound, Aave)
1. Permissionless swaps and bootstrapping of liquidity (Uniswap)
2. Simple money markets for permissionless lending, borrowing, leverage (Compound, Aave)
3. USD pegged stablecoin that works reasonably well with reasonable liquidity (USDT) globally
4. Leverage and synthetic trading (Synthetix, DyDx)
4. Leverage and synthetic trading (Synthetix, DyDx)
Everything else with very little exceptions is just a derivative of one of these
With a bit different parameters, incentives etc, but derivatives nonetheless
There is nothing wrong with experimentation, but little real innovation is happening there
With a bit different parameters, incentives etc, but derivatives nonetheless
There is nothing wrong with experimentation, but little real innovation is happening there
We entered innovation dead end, got boxed in current DeFi paradigm, thinking how can we improve Uniswap and create stablecoin thats slightly better than USDT with fancy mechanisms and ofc incentives
and while doing that we increase the systemic risk of ALL of DeFi
and while doing that we increase the systemic risk of ALL of DeFi
Because these new DeFi protocols are rehypothecating and vampire attacking each other, adding new code to the mix, increasing complexity and tail risks, while not really increasing utility from DeFi for end users, let alone bring anything really new
Obviously its much easier to tinker with some params, slap new incentives on something, than to capture end users
I argue that tech aspects of DeFi are not that hard, its much easier to build Uniswap like DEX than to capture end users
I argue that tech aspects of DeFi are not that hard, its much easier to build Uniswap like DEX than to capture end users
e.g. Uniswap has much bigger challenge making its mobile wallet a success than M3t4m45K making it's swap a success (even with high fee)
Also let's acknowledge that even DeFi 1.0 is sort of broken, with recent Curve founder needing to be bailed out by private entities OTC in order for stuff not to break apart, because he basically used Aave as exit liquidity
And we keep adding weird incentives and complexities into this. I argue that each additional yield farm increases the systemic risk of the whole system with almost exponential rate (because the risks stack on each other) while the new value created increases linearly at best
At this point I start to think that USDT on Tron is much more important crypto product for the actual people who actually need the benefits of DeFi than 99.9% of all the DeFi protocols out there, including blue chips
Another trend we will be seeing is for big players who already have some adoption success in one of the 4 verticals to scramble to capture the rest
Uniswap is eating unapologetically eating any other swaps lunch, while venturing out to integrate NFT marketplace and a wallet
Curve and Aave are trying to bring their own stablecoins to the game
Some other projects such as Frax are simply doing everything at the same time...
Curve and Aave are trying to bring their own stablecoins to the game
Some other projects such as Frax are simply doing everything at the same time...
Only Tether seems to be unbothered and moisturized given how much network effect their achieved and how much behind any competition is
Caveat: obviously there are some interesting innovations which do something different, such as Olympus with its vision to bootstrap backed but non-pegged stable asset (still remains to be seen if market actually demands such thing)
Caveat2: I am not endorsing USDT or Tron btw, there are many opaque, founder and centralisation risks
However it is a better hint towards what real people with real problems really need than the things we call DeFi
However it is a better hint towards what real people with real problems really need than the things we call DeFi
Next important step for DeFi is being closer to the end user and real commerce than it is to CT yield farm circlejerk and speculation
That is the final boss for DeFi, not figuring out how to make LPs 10% more efficient and how to aggregate LSDs to make the yield 1.5% higher
That is the final boss for DeFi, not figuring out how to make LPs 10% more efficient and how to aggregate LSDs to make the yield 1.5% higher
Forgot to write about exploits and hacks and how hard it is to fight against them in an environment where the ATTACK SURFACE INCREASES EXPONENTIALLY with every new "money lego" in the pile and how little we are doing to mitigate it...audit deeze nuts
I actually think that we…
I actually think that we…
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