Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji)Editor's Note: This article comes fromplaceholder Blue Fox Notes (ID: lanhubiji)
, translator SL; original text from
, author Alex Evans, reprinted with permission by Odaily.
As the potential of open financial protocols becomes clearer, some applications are being adopted faster than others. In terms of locked value and trading volume, Maker currently dominates, followed by Compound and Uniswap, and in terms of liquidity, they are far ahead of 0x, Dharma, Augur, and dydx. The remaining projects haven't popped up yet.
The three main protocols show a design advantage in terms of liquidity: none of the three need to require users to find a specific counterparty to complete the transaction.
The success of Maker, Compound, and Uniswap does not seem to have much to do with the range of use cases they enable. From a lending standpoint, neither Maker nor Compound can provide an approximation of the type of counterparty that exists on Dharma. Through the scalar market, Augur can provide leverage to bullish ETH, similar to what users get with Maker, which provides users with more choices. Uniswap has fewer trading pairs than many 0x relayers, but has a lot more trading volume.
Why do protocols that offer fewer options win more adoption? This may be because they limit the types of transactions available to users, allowing "automatic suppliers" to continue to provide services.
Taking a binary market on Augur, in order to go long ETH, a user needs to buy a bullish ETH share - a custom ERC20 token - from another user or a market maker. Alternatively, they can issue a complete set of call shares and short shares themselves, then sell the short tokens to other users, and keep the bullish tokens themselves until the market settles. These tokens have no trading pairs on any DEX, let alone any centralized exchange. The liquidity of this long-tail asset is severely limited, making it more expensive and inconvenient to trade.
In Maker, the operation process is easier to complete. Users issue Dai to themselves by locking ETH. To take full advantage of bullish leverage, users can simply buy ETH with newly issued Dai, which is easy to do and it has ample liquidity on any exchange. In other words, Augur spreads liquidity across a large number of unique ERC20 tokens, while Maker concentrates liquidity on a single asset, Dai. Augur is customization and diversification process, Maker is automatic and continuous process. This greatly optimizes cost and availability.
Looking at DeFi protocols from a liquidity perspective, three categories are apparent:
One group requires users to find counterparties, such as Augur, 0x, and Dharma; another group provides market maker asset pools and provides them to traders for fees, such as Compound, Uniswap; the last group sets parameters through governance , allowing users to trade directly with smart contracts, such as Maker.
Protocols like 0x, Augur, and Dharma are truly P2P: for every user who wants to go long, it has to find a counterparty to go short. Since these are bilateral exchanges negotiated by counterparties, the types of transactions on P2P protocols should form strict supersets of the other categories. There is no universal price, just a series of bilateral transactions at different price points (from which we can usually define some implicit concept of global price). There are few theoretical limits to the types of transactions these counterparties can negotiate with each other.
If we use the analogy of games, we can think of Uniswap and Compound as MMORPG games: instead of discrete bilateral transactions, all users can play games on the same map. Users don't have to find a counterparty, they just trade with the asset pool. The global price for these trades is set algorithmically, in the case of Uniswap, by a constant product rule, and for Compound, by a utilization-based interest rate model. This set of transactions and markets is more restricted.
Maker offers a (quasi) single player model where users issue loans to themselves based on parameters determined by governance. One could argue that users transact with pools of assets on behalf of system administrators. Currently, Maker only provides one type of transaction, and liquidity is concentrated on one asset, Dai.
On Augur, any user can create a call on any event, as long as they can find a counterparty with the opposite opinion. On Dharma, anyone can borrow any asset on any terms, as long as they can find a counterparty to lend them the asset. On Maker, there are relatively few arrays that can be "bet", but once set, there are few liquidity constraints. That said, single player mode is possible, and the gameplay depends on online parameters. In the case of Maker, this means that the core team only needs to focus on creating demand and liquidity for Dai, rather than considering the overall infrastructure for multi-asset exchanges.
We have observed over the past few months that protocols that centralize liquidity into a smaller number of markets and assets have had smoother adoption paths thus far. The team behind the development of the P2P DeFi protocol has also noticed this. The Dharma team has "upped the game," creating a Dharma app called Lever that has caught up to the protocol's initial P2P lending volume.
One thing to note is that Lever limits the product mix, allowing borrowers and lenders to concentrate liquidity to a small number of loan types. In order to solve the problem of P2P liquidity, the 0x protocol team has shifted its focus from relayers to market makers.
That said, many P2P protocols still require more infrastructure to scale than others that limit user choice. For example, the mechanism by which counterparties find each other (note that Dharam, Veil/Augur, and 0x all include some sort of notion of a "relayer"), the double coincidence of market makers addressing demand, and scaling solutions to address A large number of independent transactions.
If the DeFi community points to liquidity solutions for long-tail assets such as non-fungible tokens and forecasted market share, then P2P protocols may surpass the utility of their less flexible analogs by providing "Unlimited access" and custom exposures.
The contracts negotiated by these counterparties could theoretically allow users to have access to any asset or state of the world. This malleability may allow these systems to gradually serve those deeper niche markets as the flywheel of market integrity kicks in.
