Editor's Note: This article comes fromBlock beats BlockBeats (ID: BlockBeats), reprinted by Odaily with authorization.
Block beats BlockBeats (ID: BlockBeats)
Block beats BlockBeats (ID: BlockBeats)
, reprinted by Odaily with authorization.
Sam Bankman Fried, founder and CEO of the encrypted derivatives trading platform FTX, published a long post on Twitter on July 20, expounding some of his views and concerns on the current DeFi "hotness". He believes that the DeFi industry is currently in a kind of bubble. The so-called rapid increase in trading volume is actually just another kind of "flushing" of decentralized trading platforms. This situation is very dangerous and will push DeFi into a life-and-death situation . How to let the bubble land slowly and solve the problem is what people need to worry about at present.http://Curve.fisecondary title
What about DeFi, is it really growing explosively or is it a mirage of version 2.0?
Ok, so the next question is what is the transaction volume of DeFi?
The transaction volume on July 20 was close to $100 million, more than Deribit and Bitfinex combined. Uniswap had a volume of $36 million today. Set a record high for a single-day trading volume this month. The total historical trading volume of 1inch is close to 1 billion US dollars. Following this line of thought, so people locked value in DeFi, and the transaction volume increased substantially.
Did the valuation of the project (token) go up? Well, COMP, LEND, MKR, and SNX all have higher market caps than any DeFi project and are worth billions of dollars on a fully diluted basis.
The above figures look very positive, and they all strongly support the explosive growth of DeFi.
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We can point to the relative scale of these figures. Of course, the total historical transaction volume of DeFi is close to $1 billion. During the big market in March, the trading volume of FTX also exceeded 500 million US dollars. FTX is only a trading platform, not counting other trading platforms on the market. Even the single-day trading volume of a single trading platform, the combined daily trading volume of all DeFi projects has not yet caught up.https://curve.fiandhttps://coingecko.com/en/exchanges/uniswapYou might say, DeFi is still growing, right? Of course, I actually really like DeFi myself. DeFi trades today, almost twice as much as the Bitfinex trading platform. Bitfinex is famous for many things - most importantly as an anonymous enemy on Twitter (remember what a big bitfinex thing was?).
However, Bitfinex has relatively high fees, which they take pride in because it means they have real volume. In fact, Bitfinex has processed billions of dollars in fiat/stablecoin transactions (creation/redemption/USD deposits/withdrawals) this year. But those don't show up in their "volume" because they don't think it's real, and those are a lot of transactions that change hands. Admittedly, Bitfinex seems to be trading only $35 million today. But it made about $50,000 (https://leo.bitfinex.com). The transaction volume of the DeFi trading platform is 100 million US dollars, but the revenue is 0 US dollars. Today, FTX’s stablecoin trading volume is also similar to that of DeFi. But we also do not count in the daily transaction volume.
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…, primarily stablecoins, and governance tokens that are exchanged and locked into platforms….
What about locked tokens? Again, this is all stablecoins. Compound, which currently has the largest number of locked tokens, is actually mostly users who borrow DAI from the platform. Curves are also basically stablecoins. At present, most of the activities carried out in DeFi are the way of locking, trading and lending stable coins to each other.
Why? This is easy to explain, because most of the current DeFi projects have turned on liquidity mining incentives. A total notional amount of approximately $1 million tokens are awarded to liquidity providers every day. So people are buying, selling, lending, locking up their stablecoins for payments.
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The true situation
Next, let's see where this part of the daily payment of 1 million US dollars in tokens comes from? — from governance tokens. DeFi projects airdrop tokens to platform users, and all of a sudden, these projects have huge valuations.
But you can't sell valuations. So, in effect, liquidity providers earn money from people who buy governance tokens. Then you might ask, why would these people buy those governance tokens at a higher valuation? Because their project TLV has started.
That's the whole cycle. Liquidity Incentives --> TLV Up --> Valuation Rise --> Bigger Incentives --> TLV More --> ...
It’s been a positive feedback cycle that has created billions of dollars in volume, assets locked and valuations from nothing.
It seems that all indicators are improving by leaps and bounds, but in essence it is just a fallacy. Is this a brilliant growth strategy and marketing plan, or just an illusion? I want to tell the story of two exchanges here: FCoin and BitMax.
For a while, they were very similar. Both are printing billions of dollars in "transaction volume" every day. The transaction volume is amazing-incentivize content-free brush transactions through airdrop platform tokens. Both tokens grew exponentially before crashing all the way down. When their platform coin crashes, all that crap is gone, what's left of FCoin?...nothing. Or, really, less than nothing (debt). There is no trading volume, no valuation, and no assets.
So, what about BitMax, another trading platform hiding at the top of the fake trading leaderboard? They have managed to build a significant user base. In 2019, BitMax shut down their fake volume and started looking for value projects.
Both FCoin and BitMax started as large marketing campaigns - unlike liquidity mining today. But after that they made different choices and eventually one went out of business and the other became one of the better trading platforms.
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The "Life and Death Choice" of the DeFi Industry
In fact, DeFi is now facing this choice. So far, the data growth of the DeFi industry has been almost entirely hype (blown up) and marketing bubbles. But in some ways, Apple has also risen in this way. A more obvious example is Juicero (Rhythm Note: Silicon Valley smart juicer start-up company, which raised hundreds of millions of dollars, and was eventually exposed as fake).
Something to think about, what happens when the hype dies (ends)? What kind of industry have we left to future generations?
