The next important step for DeFi is to get closer to end users and real businesses, rather than focusing on liquidity mining and speculation within the industry.
Original author: fiskantes.lens
Original source: Twitter
Zee Prime is a crypto VC, and its founding partner @Fiskantes recently expressed disappointment and concerns about the current DeFi market on Twitter, pointing out that most of the innovations in DeFi currently lack practical significance. This seems to be more of a trigger for people to think about what DeFi really needs, rather than FUD.
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I have been wanting to write this article for a while, hoping that it can mark a phase bottom for DeFi. However, over the past few months, I have been quite disappointed with the state of DeFi. It’s not that I am pessimistic about tokens, but I feel that it destroys more value than it creates:
The real innovation in DeFi happened 4 years ago:
Permissionless exchanges and liquidity provision (Uniswap)
Simple money markets for permissionless borrowing, lending, and leveraged trading (Compound, Aave)
Stablecoins pegged to the US dollar with reasonable liquidity (USDT)
Leveraged and synthetic trading (Synthetix, DyDx).
Everything else, with few exceptions, is just derivatives of these innovations. Although there may be differences in parameters and incentives, they are essentially derivatives. It is not wrong to experiment, but true innovation rarely happens.
We are stuck in an innovation deadlock, trapped in the current DeFi paradigm, thinking about how to improve Uniswap and create stablecoins slightly better than USDT with fancy mechanisms and incentives.
In doing so, we increase the systemic risks of the entire DeFi system.
Because these new DeFi protocols re-collateralize and vampire each other, adding new code to the mix, increasing complexity and tail risks, without really adding utility for end users in DeFi, let alone bringing anything truly new.
Clearly, it is much easier to adjust some parameters and add new incentives to something than to attract users. I believe that the technical aspects of DeFi are not that difficult, and building decentralized exchanges similar to Uniswap is much easier than attracting users.
Furthermore, let’s admit that even DeFi 1.0 had some issues, as the recent founder of Curve needed the help of a private entity OTC to avoid a collapse, because he basically used Aave as an exit for liquidity.
And we keep adding strange incentives and complexity to this. I believe that every additional liquidity mining increases the systemic risks of the entire system almost exponentially (due to the accumulation of risks), while the newly created value can at most increase linearly.
At this point, I started to think that for people who really need the benefits of DeFi, USDT on the Tron network is more important than 99.9% of DeFi protocols, including blue-chip stocks.
Another trend we will see is that large participants who have achieved some success in four verticals are vying for the remaining market share.
Uniswap openly devours the share of any other DEX while trying to integrate the NFT market and wallet. Curve and Aave are trying to launch their stablecoins. Some other projects, like Frax, are trying to do everything at once…
Only Tether seems to be indifferent.
Note: There are obviously some interesting innovations doing different things, such as Olympus’ vision to guide support for unpegged stable assets (whether the market really needs such a thing remains to be seen). Also, I am not endorsing USDT or Tron, as they have many opaque, founder, and centralized risks. However, it better suggests what people with real problems actually need, rather than what we call DeFi.
The next important step for DeFi is to be closer to end users and real businesses, rather than liquidity mining and speculation within the circle. This is the ultimate challenge for DeFi, not figuring out how to improve the efficiency of LPs by 10% or how to aggregate LSD to increase yields by 1.5%.