From Protocol to Platform: How Do DeFi Projects Avoid the "Commoditization Trap"?

Original Article Title: DeFi's Next Evolution: How Protocols Become Platforms
Original Article Author: DefiIgnas
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: This article uses the challenge facing Ethereum and the innovation of Fluid v2 as an example. Fluid combines lending with AMM liquidity to create a platform that is suitable for both whales and developers. The v2 version of Fluid enhances capital efficiency with features such as range orders, lending liquidity strategies, and dynamic fees, providing developers with the opportunity to build new products.

The following is the original content (slightly reorganized for better readability):

The next significant leap for DeFi is the evolution of protocols into platforms.

Similar to Apple's App Store, protocols are no longer single-purpose tools but the foundation on which other apps are built.

A trend in DeFi is that wallets now use DEX aggregators in the background rather than relying on front-end applications.

As the DeFi ecosystem becomes increasingly complex, the growing popularity of Vault strategies also indicates that people are seeking the highest yield across multiple DeFi protocols.

But there is also a pitfall: protocols may become commoditized infrastructure, with user-facing applications capturing most of the revenue.

For example:

• Uniswap Labs earns front-end fees, while LP exchange fees are on a downward trend, and $UNI holders receive no benefits.

• Metamask charges a 0.875% fee because it owns the user.

• Compound Finance is becoming the front end of Morpho Vaults.

Many view Ethereum as merely infrastructure, challenged by L2 and Solana for offering lower transaction fees.

Over time, Ethereum's gas fees will be abstracted, allowing users to interact with Ethereum without holding any ETH.

This risk is part of the "Fat App Theory," but don't be quick to bury the "Fat Protocol Theory."

Ethereum is a development platform, and its valuation has shifted. Now its valuation is based on the fees it generates rather than the platform's potential and ETH's role as a store of value asset.

With the close integration of Layer 2 solutions with L1 and the restoration of the ETH burn mechanism, the narrative around ETH may change rapidly.

Interestingly, Aave has performed well as a user-facing app, especially serving large holders, while also acting as a liquidity hub for DeFi.

Or take Pumpdotfun, which has captured end users and is now expanding vertically by developing its own DEX; whereas Raydium is doing the opposite by launching a token launchpad platform.

For example, the launch of Uniswap v4 with the "Hooks" feature, similar to "plugins" or "extensions."

These "Hooks" have introduced an App Store to Uniswap. Just as Apple no longer needs to develop iPhone apps themselves, developers can build on top of Uniswap.

The token launch platform @flaunchgg is a great example, leveraging Uniswap v4's Hooks and Aave's liquidity.

Uniswap v4's hooks are great because they allow developers to build apps on top of the protocol.

While adoption has been slow (Uniswap launched liquidity mining to drive hooks adoption), Messari expects the adoption of hook-based apps to accelerate.

I believe that protocols that successfully evolve from pure infrastructure to platforms will have a significant premium. This transformation helps avoid the commoditization trap Ethereum could fall into.

Another example is the recently released Fluid DEX v2: it allows developers to build on the protocol.

Fluid v2 has transformed from a lending protocol with DEX functionality into an open platform that enables third-party developers to build on the protocol.

Even though DEX has abstracted away from end-users, Fluid v1 DEX still challenged Uniswap with its advantage of being integrated with a top-tier DEX aggregator.

In the v2 version, Fluid merged lending with AMM liquidity, creating a protocol that serves both as a frontend for whales and as a developer platform.

You will get:

• By default, range orders will earn yield (no idle liquidity).

• Lending liquidity provision strategy (DeFi first).

• Hooks + dynamic fees, perpetual contracts, and other features for developers.

Fluid will launch permissionless DEX and lending markets where developers can build new products on Fluid.

As @DeFi_Made_Here wrote, this is a fixed income market.

Importantly, the value flows back to the protocol: every hook, cross-collateralized position, or perpetual contract app built on Fluid shares fees with the ecosystem.

I believe that the capital efficiency of the v2 DEX and Fluid will help avoid the commoditization trap: just like Aave is the frontend for whales;

just like Uniswap v4, it is a developer platform. By integrating lending and AMM logic at the protocol layer and improving capital efficiency, it has become the prime platform for debt-driven LP and other strategies.

Protocols no longer need to choose between infrastructure and application; with $FLUID, they can embody the characteristics of both.

Disclaimer: I hold $FLUID tokens.

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