Buidler DAO: A must-read article on DeFi narrative during bear markets.

Original Title: "Buidler DAO Weekly Picks (17): Must-Read Articles on DeFi Narratives in Bear Market"

Original Source: Buidler DAO

Deep Selection is our recommended must-read article under this week's hot market discussion topic, sourced from the daily push of the Buidler DAO Cognitive Locust Plan. Here, senior readers of Web3 Native extract the core content and personal deep thoughts from the complex sources of information.

This issue focuses on the situation and future development of DeFi in the bear market. As the influence of DeFi penetrates into real-world assets, a wave of asset tokenization is surging, accompanied by multiple incidents of thunderstorms, and the demand for DeFi is also changing. From providing real returns to users, to discussing sustainable business models; from conceptualizing and building physical asset tokenization, to promoting protocols that can be widely used; from bear market research recommendations to Uniswap growth strategy analysis. This issue covers the current exploration direction of the DeFi field, as well as discussions on the current state of DEX. Read on to understand the core points!

The full text is 6109 words, with an estimated reading time of 15 minutes.

Article Overview:

01/ The quietly popular DeFi new narrative in the bear market: RealYield @shuang^ 

02/ The key to DeFi going mainstream: Tokenization of physical assets. @wenchuan

03/ Real yield background, preliminary exploration of DeFi business model sustainability @wenchuan 

04/ How to promote the widespread adoption of DeFi protocols? @will

05/ iZUMi Research: The current state of DEX and the future of decentralized trading @Tommy

06/ Will the trust crisis in CeFi open the door to true DeFi 2.0? Overview of DEX development trends @wenchuan

07/ Feeling anxious during the bear market? What should we really study? @Cat Boss

08/ Messari: After the saturation of the DEX market, how does Uniswap achieve alternative growth? @ Cat Master

Quietly Popular DeFi Narrative in Bear Market: Real Yield @shuang^

One, Real Yield Conceptual Sorting

1. The net revenue of the agreement is positive.

2. Real Yield's protocol distributes profits to token holders in the form of mainstream tokens.

3. The current situation is that most protocol revenues are negative, with Synthetix and GMX being the leading protocols. In bear markets, users tend to accept profits in the form of ETH and stablecoins, as opposed to bull markets.

二、Real Yield Calculation

The actual revenue = agreement income - Token cost.

Net Revenue = Protocol Revenue—Market value of protocol emissions

The current market value of the Token released = current coin price * Token circulation (Token circulation within the selected time period, such as 3 months/1 year).

思考
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Thinking
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Currently, the active users of Web3 only account for 0.05% of the Internet. During the Defi Summer, countless people pursued TVL growth as the goal of many protocols. Protocols that distribute Real Yield are not only focused on increasing scale and token issuance, but also offer a tangible "goodwill gesture" to users, attracting liquidity while providing actual returns to holders and empowering the protocol itself.

After all, in a market that requires cautious steps, the distribution of protocol profits or the key to demonstrating the real profit prospects of a protocol is important to draw attention to the sustainability of the protocol model. However, as shown in the data, only a few protocols currently have positive real returns. Therefore, it is necessary to observe and evaluate various product strategies objectively and patiently in the future.

The original link:

https://mp.weixin.qq.com/s/_D65RjgH6DU1FYIQNax9Lw

https://blog.dodoex.io/Reviewing-defi-new-narrative-realyield-396dd76375d9

DeFi Goes Mainstream: The Key is Tokenization of Real Assets @wenchuan

With more and more assets being tokenized, traditional capital markets are also integrating into the world of cryptocurrency. RWA represents physical assets in the form of tokens (homogeneous or non-homogeneous), which can be traded on the blockchain. The physical assets that RWA can represent include real estate (houses and leases), loans, contracts and guarantees, as well as any high-value items used in transactions.

RWA has freed itself from many of the constraints of traditional finance. Given the transparency of on-chain assets, as the company's revenue and costs change, the token price will also change, and changes in credit risk will be automatically reflected in loans. On-chain companies can borrow funds at lower financial costs, which can help drive economic growth.  

The inevitability of RWA. In recent years, the financial market has not effectively adapted to the development of the Internet. Most assets cannot be securitized, and most enterprises still cannot enter the international financing market. Establishing a connection between cryptocurrency and the real world is the main goal of DeFi. If DeFi wants to integrate into the mainstream, cryptocurrency must enter the physical asset market. The article then briefly discusses several credit agreements currently being developed by decentralized loan underwriting protocols Centrifuge, TrueFi, Maple, and Goldfinch.

Finally, the article believes that based on RWA, the efficiency of capital flow will be improved by an order of magnitude. This flow is driven by a credit model that continuously evaluates the default risk of each borrower and prices any available new information. In the future, every dollar of capital will be immediately allocated to the place that provides the highest risk-adjusted return.

思考
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Thinking
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It is said to be a discussion about RWA, but the whole article actually focuses on credit agreements. The underlying assets of the agreements rely on agreement audits or voting through DAO. Thinking back to a previous article on RWA, are the underlying assets supported by laws to be put on the chain? In other words, if the borrowing company goes bankrupt, are there relevant laws and policies to support investors in making claims? Thinking about these, and also the virtual asset development policy announced by Hong Kong today, perhaps there will be a soil for the development of RWA? After all, the foundation of Hong Kong's international financial center still exists. However, RWA is still in its early stages and is still an idealized concept. Finally, regarding credit agreements, it is estimated that they will be combined with DID in the later stage, rather than all being KYC. Looking forward to the combination of these two aspects.

The original link:

https://foresightnews.pro/article/detail/17457

Real yield background, preliminary exploration of DeFi business model sustainability @wenchuan

Defi in 2020 saw a surge in TVL due to liquidity mining and token rewards, leading to price wars between protocols and significant fluctuations in token prices. However, excessive speculation resulted in this bear market, causing the market to shift its focus towards Defi projects that can truly create long-term profitable opportunities. This has given rise to the core narrative of this round: Real yield.  

The article proposes the ROA of Defi, which is fee/TVL, to evaluate the efficiency of unit capital utilization; in terms of protocol retention ratio, this article believes that GMX's setting is thickened, which not only gives LP platform income, but also leaves enough operating funds for the protocol itself; regarding Token empowerment, the article believes that it is to avoid the problem similar to the TCP/IP protocol in Defi, and the protocol is an indispensable infrastructure, but it does not give any value to stakeholders; therefore, the article introduces the concept of protocol profit, that is, protocol retention income - Token issuance cost, and the cost item is the current year's new Token amount multiplied by the current coin price. 

In addition, the article compares Dex, lending, asset management, and liquidity staking platforms, and believes that the last model has stronger profitability and is less susceptible to price wars.  

Finally, the article believes that real yield may be a reliable evaluation method in comparison, but it is not useful for new projects, and if the protocol income is distributed to token holders, the protocol operating funds will be reduced. In the long run, evaluating the project development prospects based solely on protocol profits may have a counterproductive effect.

思考
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Thinking
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Similar to the discussion about Token Economics and the rebirth of DeFi, it can be seen that there is a reflection on DeFi in the industry now. The market thinking brought by this round of bear market, or narrative, is indeed more reliable than the previous disorder. However, if we still use the cash flow and profit valuation method, or we must have a set of ways that make people feel reliable and have a sense of security, it may be a kind of impact on DeFi or the entire crypto world, which reduces its imagination space. The importance of imagination space for new industries and projects is self-evident. In any case, everyone needs to find their own compromise point in practical valuation and imagination space about the future, have their own anchor points, and not follow the market narrative.

The original link:

https://www.theblockbeats.info/news/32153

How to promote the widespread adoption of DeFi protocols? @will

For those outside the industry, DeFi protocols are difficult to use. Concepts such as mnemonic phrases, public keys, and private keys are difficult for ordinary people to understand, let alone our parents' generation.

How to do it? 

Dharma App allows users to transfer US dollars through its mobile application and earn a 7.3% return. Unfortunately, it was overshadowed by the 10000% APY during the Defi summer.

 

Self-custody is the main selling point of DeFi.

Self-custody ensures that your assets will not be taken away. Your assets are always yours, which is the key value proposition of millions of users worldwide.

Stablecoin - The Gateway to DeFi

 We need a better way to convert fiat currency to stablecoins without relying on centralized trading platforms.

Regulating dApps, not protocols. 

Without regulation, there will not be large-scale adoption. A16z calls for regulation of user access to Web3 applications (clients) for cryptocurrencies, but not the protocols.

 

When will I see all of this?

The diffusion of innovative theories indicates that adoption means doing something different from what one has done before. As innovators and early adopters, we need to show more people the benefits of DeFi, convey the value of self-custody, and reduce the complexity of dApps.

思考
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Thinking
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I believe the biggest challenge lies in the contradiction between user scalability and policy regulation, such as in mainland China, products like Dharma, even if they survive the high APY of DeFi summer, will be defined as cx fraud, and outsiders will also classify this type of app as fraudulent financial software. This bull market started with DeFi and ended with DeFi. Ethereum's chain liquidation led the market to gradually collapse. In the next bull market, I believe more people are still hoping for more outside funds to enter.

The original link:

https://m.techflowpost.com/article/1543

iZUMi Research: The current state of DEX and the future of decentralized trading @Tommy

When we can't trust human nature, it's time to regain the original "trust".

In this report, we conduct data analysis on the Taker and Maker sides of the largest pool, WETH-USDC 0.05%, on the top DEX - Uniswap V3, as a representative to examine the overall status of the DEX track under different market conditions. At the same time, we conducted research on the top 20+ DEX and DEX aggregators distributed in various ecosystems in the industry. Based on their operational situation and current development direction, we make trend judgments on the mid-term future of the DEX track.

The emergence of multi-public chain ecosystem CL-AMM DEX, and the resulting professionalization of market making.

Centralized liquidity has emerged in Uniswap V3, making liquidity provision more complex and specialized. In recent times, many DEXs in various ecosystems have adopted centralized liquidity design. Considering the unique on-chain environment (including transaction confirmation delays, MEV, fee mechanisms, slippage, etc.), as well as the completely different mathematical calculations and characteristics of AMM models and traditional Order Books, we can expect more market-making teams to focus on providing professional liquidity services in centralized liquidity DEXs in the future.

The trend is obvious, chasing traffic, upgrading user experience.

DEX is getting closer to CEX in terms of trading user experience and professionalism. Recently, Uniswap, Pancakeswap, and others have also launched price charts, allowing users to get rid of the trouble of using additional K-line tools. iZUMi Finance will soon launch iZiSwap Pro, which, with DL-AMM compatible AMM and limit order features, achieves a front-end approach to CEX and creates a decentralized Binance.

Hybrid AMM + RFQ + LOB

AMM brings many problems while adapting to complex environments on the chain, such as uncertain transaction results, slippage, and various forms of attacks such as MEV. Now, many projects adopt the RFQ mechanism, where users submit transaction requests, and the platform provides quotes for users off-chain through oracles or market makers. Then, on-chain atomic swaps are implemented, eliminating slippage and ensuring transaction certainty.

Based on DEX financial products, trading platform liquidity is packaged for sale.

DEX's LP Token can fully achieve the same product and provide an equivalent level of yield. These products essentially deploy users' funds on the LP of the decentralized exchange according to a certain strategy to obtain fee income, and finally settle according to agreed rules.

思考
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Thinking
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Within three days, FTX fell from grace at a speed that exceeded everyone's expectations. The lack of clarity in centralized institutions is believed to make people lean towards decentralized Defi protocols in the future. However, there are still existing issues with AMM, Liquidity pool, etc. Whether DEX can continue to stand out in the future, attract more people to participate in trading, and provide users with a smoother experience, reduce barriers, and reflect the integration of CEX functions (Token trading, contract-integrated APP), while improving product/function/trading efficiency as much as possible.

The original link:

https://foresightnews.pro/article/h5Detail/18889

CeFi Trust Crisis Will Trigger the Real DeFi 2.0? Overview of DEX Development Trends @wenchuan

The FTX incident reflects the fragility of the centralized financial system; its fundamental problem lies in the fact that you cannot verify the true situation of centralized entities, you can only choose to believe. Strict regulation is only a transfer of power and cannot solve the trust issue. If you do not want to introduce more influential centralized entities, then DeFi will be the only solution to solve the trust issue. 

Let the public chain carry out financial activities, ensure the security and transparency of the ledger through cryptography, transfer the choice to users, safeguard their wealth by safeguarding their private keys, and decentralized financial activities will be a paradigm shift for the entire financial system. The most crucial thing is that the trust cost of DeFi is lower, and DeFi 2.0 will not be driven by high returns, but will return to the essence of Crypto. The trust crisis of CeFi will become the starting point of true DeFi 2.0. 

DEX status, product features and the gap with CEX have narrowed, but there are still user education issues and liquidity is not as good as CEX. However, DEX is experiencing rapid iteration and evolution, and both product experience and liquidity are becoming more mature. 

DEX data performance, DEX accounts for 10% to 30% of the total spot trading volume, and DEX is still catching up with CEX. Recently, the FTX incident caused user growth in Defi. 

DEX Development Trends: Routing algorithm aggregation of on-chain liquidity, providing RFQ function, introducing professional market makers, optimizing algorithms, improving capital efficiency, providing funds for retail investors, protocol providing strategies, and deploying across multiple chains.

思考
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Thinking
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The battle between DEX and CEX has been ongoing, and the essence of the debate is actually decentralization. Recently, with the collapse of CEX, many people believe that DEX will become the mainstream trend and surpass CEX. However, I personally believe that the development of things will not tend to one extreme or the other, and most of the time it is a fusion. The use of DEX has a certain threshold. As an ordinary retail investor, I personally look forward to replicating the product functions of CEX on the chain, such as the order book mode. DEX combining order book and AMM will make it easier for people to use.

The original link:

https://foresightnews.pro/article/detail/19244

Bear market is very anxious? What should we really study? @ Cat Boss

Here is a way to immerse yourself in research and stay focused - study the EIP protocol. Researching EIP can help us gain deeper insights into the development trends of the industry, what pain points are being addressed, and what progress is being made. This can also greatly benefit our in-depth study of specific projects. 

What is EIP? Is there any connection between EIP and ERC? The full name of EIP is Ethereum Improvement Proposals, which is directly translated as Ethereum improvement suggestions in Chinese. It is divided into three categories: Standards Track EIP, Meta EIP, and Informational EIP. ERC is a subcategory of Standards Track EIP, with the full name of Ethereum Request For Comment, which means Ethereum opinion solicitation draft. In other words, ERC is just a subset of EIP.  

A standard EIP typically includes the following sections: Preamble, Abstract, Motivation, Specification, Rationale, Backwards Compatibility, Test Cases, Reference Implementation, Security Considerations, and Copyright.  

The process of EIP: How does an EIP come into being? An EIP may go through the following processes from conception to formal recognition or abandonment: Idea, Draft, Review, Last Call, Final, Stagnant, Withdrawn, and Living.  

EIP Instance Analysis: Taking EIP-5585 as an example, sharing how to pay attention to the development of EIP in daily life, and how to further participate in the analysis and discussion of the protocol.

思考
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Thinking
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EIP can be said to be a very important part of the Ethereum ecosystem. Through EIP, we can learn about the latest developments and hot topics in the Ethereum community, which can give us a lot of inspiration. The last section of the article uses EIP-5585 as an example to explain how to pay attention to and analyze EIP, which is very practical.

The original link:

https://medium.com/@jianshubiji/In-a-bear-market-we-are-anxious-what-should-we-study-fbbc89e1f4b7

Messari: After the saturation of the DEX market, how will Uniswap achieve alternative growth? @ Cat Laoda

Uniswap has successfully captured the DEX market, so what's next? 

The main points of this article are summarized as follows: 

In order to continue its current growth momentum, Uniswap must find ways to expand its total addressable market.

Uniswap has successfully deployed on Layer2 (L2) scaling solutions, accounting for 65% of L2 • DEX (decentralized exchange) trading volume in Q3 2022. Some projects have utilized Uniswap's software development kit, integrating the Uniswap protocol or enhancing its functionality.

Whether to turn on the Fee Switch is a major debate in the development of Uniswap. The question is whether the new funding pool for growth investment will offset the weaker competitive position between liquidity providers.

Uniswap's success is largely due to its ecosystem funding and open-source development. Both initiatives have paved the way for expanding its potential market by launching new businesses. Multi-chain deployment, integration, enhanced functionality, and the acquisition of Genie have proven its expansion both vertically and horizontally. 

除了上述扩张之外，即将到来的运营变化可能会对 Uniswap 的核心用户群产生负面影响。费用开关实验如果通过，对 UNI 持有者和整个 crypto 的协议构建者来说都是一项重要的测试。 

Translation: Apart from the aforementioned expansion, upcoming operational changes may have a negative impact on Uniswap's core user base. If the fee switch experiment is successful, it will be an important test for UNI holders and the entire crypto protocol builders.

Regardless of what happens in the end, Uniswap Labs has sufficient funds to continue building. The team that launched Uniswap during the last bear market may continue to innovate during this bear market.

思考
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Thinking
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The total trading volume of Uniswap in the third quarter previously announced decreased by 30%, but it was mainly concentrated on Ethereum, and its choice of "multi-chain" development has brought an increase in trading volume. After the FTX explosion, the DEX market has once again ushered in a wave of growth for passive income. It is believed that the market performance of Uniswap in the fourth quarter will not be too bad, at least in the current bear market phase, it can still remain stable. 

After analyzing information from multiple sources, returning to the original question "Uniswap has successfully captured the DEX market, so what's next?", it is highly likely that the next step will be the integration with the NFT market.

DeFi is too specialized, so there are not many users who can participate. However, the breakthrough of NFT can bring a large user base. If the two can be combined, I believe that maintaining growth and leading the industry will be stable for Uni.

Additionally, with the release of zkSync testnet, Uniswap V3 has also been deployed on zkSync. This is also worth paying attention to.

The original link:

https://www.defidaonews.com/article/6789540

Original article link

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