DeFi: what it looks like in 2021, what it looks like in 2022

Preview of this sentence:

Fi DeFi's total closing costs are over US $ 100 billion, mostly distributed to lenders and exchanges. However, most DeFi tokens do not follow Ethereum.

DeFi's De Theft has grown eightfold from last year, with 50 strikes totaling $ 610 million.

Tswj administrative control will separate and modify DeFi. It is believed that more and more applications will violate KYC policies and are necessary to reassure users of the product.

DeFi status in 2021

Decentralized Finance (DeFi) is an open source financial system based on smart contracts and blockchain oracles, which has the potential to replace many years of financial processes with opaque infrastructure and processes. DeFi provides users with unauthorized access and access restrictions to various financial products without having to change the management of their assets to third parties such as businesses or money companies.

The "DeFi Summer" of 2020 created a boom in the liquid mining industry and opened the deadline to join DeFi. The total cost of fixed line telephony (TVL) services in DeFi contracts this year fell from $ 16.1 billion to $ 101.4 billion, with most of the revenue going to loan contracts and DEXs.

However, after DeFi tokens dominated the cryptocurrency market in the first quarter of this year, performance began to decline. The DeFi index was 1.0% in January, down from 3.2% in April and currently at 1.5%.

If DeFi's "blue chips" (UNI, AAVE, COMP, SUSHI, SNX, CRV and YFI) had been used as beacons for DeFi tokens since the start of the year, most of them would be better than Bitcoin in price, but not Ether. whore. by the first trimester. CRV was the only DeFi token to overtake Ethereum after an explosion of growth in the fourth quarter, while SNX, YFI, and COMP were the worst in recent times.

Ethereum's significant increase in strength is actually evidenced by the focus on developing DeFi on Ethereum. Uniswap is the most commonly used DeFi protocol, with over 1 million active users in May, with an average of 45.7% of monthly Uniswap users being new.

Uniswap also accounts for a significant portion of its total revenue from DeFi contracts, with monthly revenue of $ 2.2 billion. However, most of DeFi's revenue is resource-based, that is, costs based on user contracts (such as financial service providers and lenders). Only 8.1% of the revenue from this DeFi process goes to Developer Protocol and the Board.

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The loan is one of the main pillars of DeFi. The Fixed Price (TVL) has seen stagnant growth, with lending growth of 559.2%, from $ 7.1 billion in 2020 to $ 46.8 billion in 2021. The Third Loan Agreement The Creator Maker, Compound and Aave (Aave) equity capital, with TVL at $ 18.3 billion, $ 12.8 billion and $ 10.8 billion, respectively, with total assets of $ 9.1 billion and $ 7.7 billion, respectively, about $ 6.5 billion. .

A good example of a widely used loan agreement is that all loans must be oversized. If the job is deemed to be at risk (if the job is less than the minimum loan amount), the trustee can order the termination of the business to pay the unpaid debts. This allows borrowers to obtain anonymous loans, without relying on inaccurate information, thus reducing the risk of negotiating contracts.

While mortgages have always been around, the lending industry has diversified as new loan companies use fine-tuning and focus on a wide range of niche products for consumers.

Alchemix and Abracadabra can use their income to act as liability, which reduces some of the capital shortfall, but increases the risk of set-up. TrueFi is also the first unsecured lender in the chain to improve the ability to lend to large lenders.

Decentralized exchange (DEX)

In addition to loan agreements, Automated Business Automation (AMM) manufacturers may earn income from business partners who wish to invest in assets.

Overall, the overall DEX monthly volume market volume increased by $ 162.8 billion in May 2021, with the largest increase in January, up 137.3%. However, the packaging market has not fully recovered from the May stock market crash and the DEX / stock market ratio remains below 10% per year.

Curve became the largest DEX with a closing value of $ 16.8 billion, representing 6.8% of DEX's total closing volume. Curve is an AMM type optimized for trading in similar assets resulting in low risk and high return on investment due to Liquid Mining (LM) and cost variations.

Uniswap, on the other hand, continues to integrate the content of packaging. Uniswap v2 overtook Uniswap v3 in June as DEX with the highest transaction volume. Uniswap v2 monthly market share reached $ 59.2 billion at its highest level in May, but v3 core performance was able to generate lower volumes, which is an insignificant ratio for v3. .

However, as the number of DEXs increases and revenues increase, users will prefer to trade through DEX aggregators. These aggregators improve the exchange rate for better performance. Surprisingly, on average, only 13.9% of DEX transaction volume comes from aggregators. Many trading volumes are also DEX or trading robots. 1inch is the best DEX aggregator of the year with 64.9% market share, after API 0x (Matcha) with 16.8%.

Derivatives

Futures have always been the most important trading segment in the crypto industry as DEXs have become more competitive over the years which has led to broader decisions in the derivatives industry as the next. stage of their development.

Perpetual Protocol in terms of the packaging industry in the derivatives market in the first half of 2021, set a weekly volume record of $ 551.1 million in the weekly market that fell in May. Perpetual runs on the xDai sidechain and leads on top of Virtual AMM (vAMM) which measures market depth. This model allows contracts to be disbursed quickly without partners.

dYdX returned in August after announcing its iconic DYDX story and unveiling its liquid extraction plans. dYdX is based on StarkEx, the zk-rollup (Layer2) solution. It uses a hybrid build model that does not support the payment chain and a combination of low cost chains with orders. The liquidity for dYdX usually comes from specialist manufacturers (such as GSR and Wintermute).

Perpetual futures contracts often operate independently of other DeFi contracts and sacrifice construction in an effort to improve capital.

Synthetic assets are tokenized derivatives. Synthetix is ​​the oldest and largest real estate title release contract to date. SNX entrepreneurs can provide synthetic tokens by paying overpayments and trading with other synthetic tokens on the platform, which does not provide a sliding function to the oracle value.

Synthetics trading volume is made up of synthetic currency tokens (52.2%) and cryptocurrency (47.1%). The Synthetix daily trader average fell from 167.5 in January to 13.8 in November, indicating that it was not performing well for the consumer market. After switching to Optimism, attention turns to whether users can regain their preferences.

On the other hand, the Terra public chain mirror-like process mimics Synthetix's oversizing scheme, but does not eliminate trading slippage, so synthetic tokens are only traded in the secondary market. As a result, the burden of open trades shifted to the open market and the value of electrical equipment marketed by Glass continued to fluctuate.

Over the past few months, TVLs for both platforms have been stable, with Synthetix at $ 1.7 billion and Mirror at $ 1.3 billion. As the US Securities and Exchange Commission (SEC) recently announced legislation against the Mirror, crisis management could hamper growth.

However, not all types of competition will be successful in 2021. Due to lack of capital and difficult procedures in the past, the options industry has not yet become a tool for making tasks more efficient and effective. efficient.

product design

DeFi's growth in recent years has been compounded by the complexity of portfolio management, which has resulted in more prepackaged products, ignoring the complexity of various financial instruments to save time and money for companies. companies.

The first iteration of product design is revenue collection, which can improve user feedback. Convex is TVL's biggest revenue generator. It was launched in May 2021 to raise prices for Curve, the largest TV exchange provider. With Curve's $ 16 billion TVL, Convex surpassed Yearn, the number one revenue pool.

Another type of product development is still going on this year. For example, income from contracts like BarnBridge divides income into several segments for investors with different risks, while a metric like the DeFi Pulse Index allows people to interfere with the basket of selected tokens. .

On the other hand, managers of automated liquidity providers (LPs) like Charm and Gelato barely match LP's position in Uniswap v3, while quality automated trading managers like Ribbon offer different derivatives with risk-return correction. These products are only in their infancy and it remains to be seen whether they will be used.

read liquidity cog

In December 2020, the tag chain developed by ETHereum began to move from Ethereum 2.0 approval to Proof of Stake (PoS) approval. Users can sign up with ETH to become network guarantor and get more ETH benefits. However, becoming an endorser requires sufficient knowledge and resources, and ETH promises to be irrevocable until Ethereum 2.0 is live.

Liquid Commitment Solutions can create independent, tokenized and “liquid” ETH protocols. Users who have contracted ETH under the Eth2 contract on Lido will receive a floating point in the equivalent form stETH to allow participants to access the PoS. You can continue to use it while staking. In other applications, DeFi includes the responsibility of lending platforms.

Lido became Ethereum 2.0 the largest guaranteed trading platform with an 86.6% market share and a guarantee of 1.5 million ETH ($ 6.6 billion) per year, which is the equivalent of 1.3% of Ethereum products currently. TVL on the mobile engagement platform will increase further as Ethereum's promises cannot be reversed until the Ethereum mainnet is integrated into the beacon chain.

Decentralized stable currency

Decentralized Stabilitycoins facilitate unauthorized payment from chains. Maker's DAI is the largest coin of decentralized stability, and its share of total holdings has increased from 4.1% in 2021 to 6.3%. DAI's revenue has grown from 1.2 billion won to 9 billion won this year.

In 2020, the DAI changed the price rate for a while and introduced the Indexed Stability Module (PSM), keeping the value of the DAI stable at a level close to the anchor value. PSM allows users to trade products directly with DAI at a fixed price. 14.9% of DAI circuits are supported by USDP provided by USDC or PSM.

As in other areas, models of decentralized stability parts have become more diverse. Abracadabra's MIM is a stable currency accounting for the majority of operating income, making it the second decentralized mortgage-backed stable currency to date with a market value of $ 3.5 billion. MIM borrowers improve their finances by providing them with assets to earn income.

For many years, the “stable money trilemma” has also become a nuisance for difficult solutions. The trilemma represents the stability coin problem in terms of three characteristics: decentralization, investment efficiency, and cost stability. Numerous experiments with algorithmic stability coins have been performed to resolve the above trilemma, but with mixed results.

As early as 2021, we have seen many algorithmic stable coins without interference (e.g. coins) collapse due to the lack of risk of impact when the exchange rate is lower than expected. However, other forms of algorithmic stability coins that rely in part or on special assets have started to flourish, four of which are worth over $ 300 million.

According to Terra Public Chain, UST is the largest algorithmically stable currency with a market value of $ 7.6 billion, provided by LUNA Assets as seigniorage shares, and LUNA is owned by Terra blockchain. Users can burn 1 USD of LUNA to generate 1 UST and start over. Since the UST is heavily used by the Anchor Protocol lending platform and the Electronic Broadcasting Platform Mirror Protocol, it has benefited from the explosive growth of Terra's DeFi ecosystem.

low volatility tokens

Low Volatility Algorithmic Tokens, commonly referred to as 'Unlinked Stability Coins', are newer devices that hit the market this year. Their goal is to become a decentralized stored currency, which is extremely volatile compared to most crypto assets and less long-term changes in purchasing power due to unpredictable monetary policy.

These tokens contain entry policies that change the supply of tokens when demand changes to a varying value. The Olympus DAO OHM was launched in March 2021 and is now the most volatile token with a market value of US $ 4.1 billion.

OHM tokens are backed by exclusive products, but the marketing depends on the price. This is due to the fraudulent request that traders are encouraged to promise OHM to get more OHM tokens. The DAO will sell the acquired OHM at a lower price than the market, allowing the entrepreneur to save more money and release more OHM tokens through additional exclusive products. This creates a demand-driven business environment.

However, it will also be seen that these tokens can generate more demand than the actual demand.

DeFi's "Bitcoin Pin"

For some, Bitcoin was the first “DeFi” that allowed owners to store and transfer money without authorization. Although the Bitcoin network does not have near-turing-complete virtual machines, Bitcoin has been widely used for the DeFi application on other blockchains. This is not surprising since BTC has a 39.1% market share in the cryptocurrency market. This year, the number of “pinned bitcoins” on Ethereum has steadily increased from 140,000 to 316,600, or 1.7% of all bitcoins.

Intermediaries play an important role in transferring the value of Bitcoin to DeFi. It may be due to financial investment and user-friendly use. WBTC is the most popular Bitcoin anchor version, accounting for 80.0% of Ethereum's market share, with HBTC accounting for 12.6%, beating renBTC in January 2021. Our WBTC owners are fully contracted loan under license: founder (20.8%), compound (13.1%) and Aave (10.1%).

During the same Binance Smart Chain (BSC) period, the circulation of BTCB increased from 530 to 10,500, indicating the positive development of the BSC DeFi ecosystem. The top two holders were Tranchess, the BTC-focused stock market at 19.8%, and Venus at 11.0%, making TVL BSC's biggest lender.

Assurance

Most areas of the DeFi ecosystem will thrive in 2021, but DeFi coverage will be one of the few groups to fail. Nexus Mutual Insurance, the home equity solution, fell 70.0% to $ 688.2 million after rising $ 2.3 billion in February.

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IDO refers to the token declaration by DEX and is now a way to declare a token. However, the announcement of tokens through the creation of the DEX pool will lead to competition between "scientists" and bots and users, which will cause prices to rise in the market and then their sale to open exchanges to earn money. money.

The LBP platform (LBP) created by Equity has become a better way to advertise tokens this year. The first registration fees for the new token will start at the highest level to limit competition. The value is adjusted according to the need to do so immediately, algorithms and over time. Similar to Dutch auctions, but more sensitive to peak demand periods.

On the other hand, Initial Binding Curve Issuance (IBCO), driven by the Hegic protocol, has become the preferred media path for most Solana-based projects. Buyers can deposit or withdraw money at the time of the sale, after which they can redeem their tokens proportionately. The higher the winnings, the higher the measurement token. Unlike LBPs, IBCOs offer equal value to participants of all sizes.

Some companies do not use IDOs, but prefer to distribute tokens to free contract users, such as airdrops, due to concerns about token sales. Some users prefer to use this model to use multiple wallets to interfere with unpublished tokens in order to gain significant future benefits. However, whether these jobs are ethical remains controversial in the crypto community.

Details of DeFi vulnerabilities in 2021

By 2020, the popularity of the DeFi protocol will increase the number of users and TVLs of the project. As a result, this big deal not only drew the market but also hackers who stole over $ 77 million in consumer money into the gap in 2020..

Public channels compatible with Ethereum EVM and smart contracts that cannot be changed quickly and easily for an attack are leading to repeated thefts this year. This year's theft was $ 610 million, eight times more than last year, with a total of 50 patients, and about 60% ($ 355 million) of the total amount stolen on borrowed loans.

Another situation is that the attacker may return some of the money to the project, and this usually happens because the attacker approved the bug or was identified. Together, 53% ($ 404 million) of all proceeds in 2021 went to the project, primarily through the Poly network.

Most bad stuff is still happening in Ethereum, but hacker attacks on BSC, Polygon, and Avalanche have been happening since April as well. About a third ($ 200 million) of the proceeds went to BSC's operations, and it was in May that crypto users called it “BSC's Gray May”.

It looks like DeFi developers need to learn a lesson, look at smart contracts, and play an additional role for consumers.

The future of DeFi in 2022

activity forecasts

Auctions are a platform where traders can bet on real events. This is the first idea of ​​a decentralized blockchain application, like Augur.

Despite its initial start-up, it failed to produce an astonishing volume of transactions compared to other DeFi protocols. The Polymarket of Polygon is expected to be the largest market for 2021, offering popular global events (such as the US Presidential Election) and crypto models (such as Bitcoin prices, Ethereum upgrades). Surprisingly, sports betting does not attract more crypto traders to participate.

As the DeFi user experience improves, the advantage of the real-time mobile industry is that it can be affected by global warming events and provide more interest to users and in deep water. Going forward, if the betting market is watched over time, it is necessary to consider whether this will be a 'change', but the truth is that you are looking to the future where you will have to. take reasonable measures and prevent corruption. Decentralized oracle status in the prediction process. Trading platforms are not essential for full decentralization.

No US dollar stability coins

Since Stabilitycoins are typically used to trade cryptocurrencies into US dollars, most of the securities are tied to US dollars. Currently, many stablecoins are linked to various fiat currencies, but there is often no demand or income. However, he expects Eurostablecoins to be adopted in the next few years.

First of all, the euro is already the second largest of the stable group now. There are two Euro-linked stablecoins in the DeFi arena. sEUR is Synthetix synthetic euro with a market value of $ 118.7 million and STATIS EURO (EURS) is a managed euro-stable currency issued by Stasis with a market value of $ 122.2 million. United States.

Secondly, the good attitude of the EU towards the enforcement of rules regarding securities and other cryptocurrencies and the more welcoming attitude towards the crypto industry could bring more DeFi applications to the market. 'Europe, where euro stability coins will play an important role. The "Crypto Asset Market Act" is a law enacted by the European Union that would establish group licenses to provide clear regulation of many crypto providers, including stable banks.

Tokenization of real assets

Cryptocurrency as a class asset has grown into a $ 2 trillion market, but remains isolated and unconnected by other companies. With the development of the tokenized market, anything of value, be it financial or cultural, can be tokenized in one way or another. Connecting the differences between Real Assets (RWAs) and DeFi can bring a lot of 'old wealth' to the new digital business and strengthen the DeFi ecosystem.

Tokenized RWA offers the benefits of traditional blockchain and DeFi infrastructure. Centrifuge, for example, is an application chain that supports the tokenization of RWAs such as NFTs and provides funding for various assets tokenized on DeFi. Tinlake is Centrifuge's RWA pool investment portal, with over $ 44.4 million in TVL across 10 RWA pools.

Innovation management

The interests of managed token management and user protocol are inconsistent. Only 7% of users fall into both categories. Token holders generally prefer to deduct the maximum amount of the short term value from the long term value of their contract. On the other hand, contractual users favor the sustainability and neutrality of the contract.

The design is a classic example of a case management system. Token holders enjoy increased interest rates on DAI loans, while borrowers prefer the differential. If users can't trust management to determine what's best for them, it will drive them away.

Curve's fixed position voting solution solves this problem. Curve's CRV Race Token does not directly provide voting rights. However, CRV holders can lock their tokens, issue a 1: 1 veCRV, and vote for veCRV holders. The longer the token is closed, the more veCRV (voting rights) you will get. In this way, the token holder and the user will be able to benefit from the DEX development. In addition, if Curve financial service providers close their income directly, they will be more profitable, allowing users to participate in management.

Voting can be extended to all future DeFi management zones to maximize participant benefits.

DeFi curve

Schools are required to send funds into the DeFi sector, but face a number of challenges due to unregulated regulation (KYC / AML, safety regulations). Some approval was given through the idea of ​​a "DeFi license" to comply with the regulations in force.

Some people believe that such an improvement violates the purpose of DeFi, which is the principle of decentralization. However, some applications still require the trust of certain parties, such as unsecured lenders, tokenized RWA administrators, etc. Open financial management is not just about financial management, it is about providing users with choice and transparency.

The project can be funded by large companies that have not been affected by DeFi. Some existing companies have gradually extended their branches to consumers such as Aave Arc and Compound Treasure.

However, most contracts are still unlicensed and more and more manufacturers are committing to remain anonymous. They will work to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be, to be at break at break at break at break at break at break at break at break at break at break working, working , work, work, work, work, work, work, work, work, work, work, work, work, work, work, work, work, work, work, work, they will work hard. The threat of access restrictions will also further undermine the growth and adoption of the privacy-enhancing DeFi ecosystem through zero-knowledge technology.

Many “decentralized applications” today rely on middleware devices such as centralized user management, user-optimized algorithms, and so on. As emergency management increases, they will have to choose one or the other. Some contracts follow and follow KYC guidelines or restrict users from certain jurisdictions, while others remain anonymous and terminate front-end controls and contracts.

However, the DeFi fork does not seem to be an exception.

Finally, Ethereum's DeFi ecological card is connected.