This is an inevitable trial and error. But where to go after wrestling is a question that the DeFi industry needs to think about and keep thinking about.
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Author | Aloe Vera Edit | Lu Xiaoming
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In July 2019, Deutsche Bank announced a major plan to lay off 18,000 people worldwide. At that time, a captured picture captured the attention of the major media. In this picture, two men in suits walked out of the bank’s office building, one of them carrying a canvas bag with the words Bitcoin.
At the time of the decline of traditional banks, decentralized finance has followed with a hint of subversion.
2019 is the year of decentralized finance.
Decentralized finance is the use of financial services based on blockchain technology. Products include decentralized loans, decentralized exchanges, and decentralized derivatives.
In the past year, blockchain technology has tried many landing scenarios. In the end, Ethereum abroad seems to have reached a certain consensus and believes that DeFi is the best application of the Ethereum smart contract.
It is estimated that the global bond market currently exceeds $100 trillion, the global stock market value exceeds 64 trillion, and the global derivatives market has a total market capitalization of approximately $12.7 trillion. If DeFi can get a piece of it, it will be a huge market.
The enthusiasm of DeFi is not without reason. In 2018, influenced by the bear market, decentralized lending represented by MakerDao gradually entered the public eye. Lending, stable currency and derivatives have become the way for people to survive in the overall decline in the overall asset price of cryptocurrencies. At that time, the DeFi project, including Veil, dYdX, and Dharma, successively won the counter-market investment of Wall Street Capital..
The market size is also growing rapidly. According to DefiPulse, on June 27th, the total amount of lock-ups in the lending market hit a peak of about $602 million, an increase of about 129.77% compared to $262 million on January 1 this year.
But in the near future, the fast-growing DeFi industry has seen two left behind. In July this year, Veil, the second-largest forecast market platform for Ethereum, was announced last week. The project, which was funded by well-known venture capital institutions such as Paradigm and Sequoia, survived for only six months. In early August, Dharma, a San Francisco-based crypto loan facility, also announced a decision to suspend new deposits and loans on its platform.
At the same time, people have found that the lock-up position of the entire lending market has been declining since hitting a high point on June 27 this year, and has dropped by about 30.59%.
So, there are some different sounds about DeFi. The founder of Primitive Ventures, Wan Hui, said on Weibo that DeFi is the concept of self-help in the Ethereum after the DApp concept was cooled in the ether.
Although it’s too early to tell the story, we still have to throw a question: Is it a new lifeline for the blockchain after DApp, is it really good enough to lead the blockchain, or the next one? What about the cool “DApp” concept? How long will this pain last before DeFi takes on the future of the blockchain?
Star Project Veil and Dharma Frustrated
In July, the star DeFi project, which was launched only half a year, Veil announced that it would stop operations.
This predictive derivatives trading platform, jointly launched by the decentralized forecasting platform Augur and 0x, has been favored by Sequoia and the encryption fund 1confirmation and Paradigm.
At that time, DeFi’s three major applications were lending, stable currency and decentralized exchanges. Veil, which aims to start the market with predictions, is seen as the power to revitalize DeFi’s new track. In May of this year, Veil opened the 2020 US presidential election decentralized market forecasting service and once became a topic.
If you look back at Veil’s daily activity and volume data before closing, it’s not difficultUnderstanding Veil is hard to find. According to DefiPulse, since opening, Veil’s total lock position does not exceed $90,000, which accounts for 0.01% of the total DeFi lock position. The parent company and the Aurgur lock position that focuses on the forecast market account for only 0.15%. . In the Veil page, the predicted event participation amount exceeds 10,000 DAI in addition to the presidential election. The vast majority of predicted events participate in less than 10 ETH.
Founder Paul Fletcher pointed out three of their dilemmas in the outage description:
1. We want to do too much. Forecasting the market is a broad form of gambling, derivatives and insurance. Centralized versions of these vertical fields may be more suitable for users than general forms;
2. We did not provide a good entry experience. The cryptocurrency is still at an early stage as a user base, and we have not provided enough convenience for users who do not have cryptocurrencies or wallets;
3. We are not decentralized or regulated. Some users want a completely decentralized, unstoppable product; others want a regulated product. It is difficult to provide something that people think is valuable between the two.
In general, it can be summarized as the balance between predicting a small market, high user thresholds, decentralization and regulation.
For Veil’s exit, Hydro Protocol & DDEX market public relations person in charge of Dai Shichao said: “No money, no secondary market burden, belong to the track trial and error stop loss, also share the failure experience when exiting Come out.”
One month after Veil announced the shutdown, the Dharma platform on the decentralized lending platform appeared to be difficult for users to withdraw coins, the contract code was closed, and DappTotal’s DeFi data showed that Dharma’s locked assets fell from $21.87 million a month ago. As of $5.61 million on August 2, 74% of the assets had been diverted from the currency, and the assets were out of the state. Dharma was once misunderstood as “running”.
A week later, the founding team said that the suspension of the loan was to create a better user experience.
Dharma’s background has many similarities with Veil, and in February it announced a $7 million financing, including investment capitals such as Green Visor Capital, Polychain Capital, Passport Capital, Y Combinator and Coinbase Ventures; founding team The strength is equally good, the founder graduated from Stanford, worked at Google and the cryptocurrency exchange CoinbOr the application ecology is also different.
User thresholds and experiences directly contribute to the niche of users. At the StakingCon-Staking Eco-Conference, which was co-sponsored by Odaily Planet Daily and BlockBeats, PeckShield founder Jiang Xuxian analyzed the data of Makerdao and Compound and dYdX. The total borrowing of these lending platforms has greatly increased from this year. The increase from around 34 million in January to 220 million at the end of June has more than fivefold in just a few months. However, compared to the significant increase in the total amount of borrowing, the number of users of the DeFi project is relatively small. He said that this will be a major challenge for the entire lending industry.
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Risk Disclosure
At present, borrowing products can be divided into fixed-term and non-fixed-term loan options according to the loan term. The risk factors are different. For DeFi products, the necessary risk disclosure is also very important.
Unveiled the DeFi rookie’s unmanaged lending agreement in the near future. NUO, which was once in the top five DeFi project rankings in the US dollar in April, recently encountered user complaints due to risk disclosure.
A netizen named whuttheeperson posted on Reddit that his fixed-term loan pledge on NUO was liquidated within the agreed lock-in time. He believes that unlike open-ended crypto loans like Maker and Compound, the risk of liquidation of fixed loans is not large, and they have adequately adjusted the parameters to accommodate the risk of devaluation of risk collateral during that time.
He also believes that NUO has a huge oversight of risk disclosure during its loan process; on the contrary, the more mature MakerDAO has relevant risk warnings at every step.
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Encrypted Asset Restrictions
DForce and the founder of Blockpower Yang Mindao believe that the problem with DeFi is that there are too few cryptographic assets that can actually be mortgaged.
It must be acknowledged that even though DAI and USDC are absolute head-stabilized coins in DeFi, they are not truly universally adopted in China. The size of decentralized loans is only 1% of centralized lending. .
The current DeFi track has only a lot of players on Ethereum. Of the top 50 financial dApps, 42 are based on Ethereum, includingIncluding MakerDAO and OmiseGO; of the top 50 exchanges dApp, 44 are built on Ethereum, including Augur and Uniswap.
The single asset also makes the DeFi lock volume vulnerable to the ETH market. For the recent decline in lock volume, Pan Chao, the head of MakerDao China, said that the main reason is that the ETH asset market is down, and many people have replaced ETH with Stabilizing the currency, the current stable currency DAI lock volume has increased to more than 30 million US dollars.
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Insufficient risk control system
Because risk control relies on mortgages, collateral prices affect risk. As a result, the chain of predictors (the mechanism for discovering and submitting real data to smart contracts) has become the focus of the current DeFi industry.
A price predictor that is accurate, fast, unbiased, and resistant to price manipulation is considered a “missing puzzle” for DeFi products. The current centralization and decentralized oracles have room for improvement: centralization It means that there is a risk of price manipulation, and the decentralized predictor still has insufficient incentive mechanism to provide real-time and accurate prices.
The denomination machine of the decentralized exchange Uniswap is considered to be the current leader. Instead of matching the buyers and sellers through the order book, it collects the liquidity of the market maker and uses algorithms to set the price as long as it exists. The spread will create an opportunity for arbitrage and the price will be quickly corrected. However, the current drawback of Uniswap is its poor mobility. Some people call it “砸500 ETHs.”
The vast majority of DeFi projects currently use the Makerdao oracle. According to Pan Chao, the Maker predictor is a distributed oracle, which selects the price of 14 exchanges and selects the median for the price.
Pan Chao believes that the problem of the prophecy depends mainly on what the pledge of the provider of the prophecy is, whether it is reputation or assets. To solve the problem of the prophecy machine, it is actually to solve the reputation problem in the chain; at present, such a reputation system is not mature in the chain.
The lack of a reputation system also affects the DeFi user experience.
“The biggest drawback of DeFi today is that it relies on over-collateralized debt positions.” Fitzner Blockchain Consulting Director Campbell said.
Taking MakerDAO and Compound in the front of the current lock volume as an example, currently, MakerDAO requires users to deposit 1.5 times the ETH price to establish a mortgage debt warehouse that supports Dai.