DeFi protocols after the dust settles: who will 'govern them'?

No one can replicate community engagement, great product, integrations and trust.

If you have been active-ethexc in blockchain circles during the ICO mania, IEO hype, or STO mania, then you already know or participate in DeFi. If you’re in the game right now, you’ve probably gotten hundreds of messages from old crypto buddies asking you to “teach them how to participate in DeFi!”

A project with a return on investment of tens of times, in the next week, there will be dozens of clone projects with a return on investment of several times. This is the way of the rattlesnake: the industry is blowing a bubble that destroys all the good intentions of startups. What happens when the dust settles?

In January 2020, a16z published the article "Building Cryptographic Applications Playbook", which describes three key factors they believe are critical to the success of the project:

1. Product/Market Fit

2. Community Engagement

3. Sufficient decentralization (community ownership)

Evmos partners with Anchorage Digital to provide custody and staking services: Jinse Finance reports that Evmos, a connector for the Cosmos and Ethereum blockchains, is partnering with cryptocurrency custody company Anchorage Digital to provide access and staking of its native token EVMOS. The collaboration between Anchorage and Evmos aims to bring the inter-blockchain communication protocol to investors and gain greater institutional adoption. (coindesk) [2022/11/10 12:41:07]

At the time, they mentioned that they hadn’t seen a project that would execute exactly on these factors in sequence, but YFI did it all in one weekend: $4 million AUM with the most active-ethexc community engagement. Cryptocurrency influencers and teams from across the industry were handed over to the community together. All of these are strong indications that it has achieved product-market fit. However, the question remains how sticky these capitals are now chasing yield. Importantly, for this gain to materialize, YFI (the token itself) must have lasting value.

The oracle machine Pyth Network launched the network Pythnet based on the Solana code base: On August 2, the Solana ecological oracle machine Pyth Network announced the launch of the network Pythnet based on the Solana code base. According to Pyth, Pythnet enables the Pyth network to aggregate first-party data at a sub-meabyte level and provide pricing to other chains through Wormhole's general-purpose messaging layer.

Pyth Network said that up to now, it has aggregated on-chain data from more than 65 providers to support more than 80 price streams, and will perform 700 price updates per second. After using Pythnet, it will be able to expand by 20 times. [2022/8/2 2:53:12]

The question for all DeFi projects is, will the community and capital support the project without the hype?

The rise of DeFi can be compared to the dot-com bubble of 2001, when every company CEO who knew how to launch Netscape had a business plan for conquering the internet. In the end, much of this project failed, but if you made a good choice then, there is no doubt that you are thriving now. So, DeFi is the same now, but only on a smaller scale and for a short period of time. Therefore, you may get better returns in less time.

Only $38.45 million of DeFi lockups on Terra’s old chain remain: According to Jinse Finance, according to the latest data from defillama, only $38.45 million of DeFi lockups remain on Terra’s old chain, of which the Anchor protocol’s lockup is about $23 million. The DeFi locked-up volume on the Terra chain once exceeded $30 billion, but with the collapse of the UST/LUNA stablecoin, this indicator has fallen off a cliff since early May. [2022/5/31 3:52:33]

The first rule of token engineering for creating new models is to find limited resources. In the future, this limited resource will give your token a solid foundation. The resource must be natural, not man-made, because in other cases the asset would be purely speculative and ultimately uncompetitive in the long run. Let me explain in detail: Take yearn.finance as an example, think about why the pump happened? If DeFi factors are not taken into account, we will be left with 30,000 tokens, which is also the total supply of YFI. The initial asset price was $30, and rose to more than $10,000 within two weeks of launch. After YFI came YFII, an "improved" (i.e. identical) version of the YFI protocol whose price skyrocketed to $700 within a week. The artificial source here is increasing the total token supply on DeFi. As for finite natural resources, in a blockchain protocol it could be throughput or consensus algorithm (and block time). But what about DeFi?

The number of Bitcoin Lightning Network nodes is 35,217: Jinse Finance reported that 1ML website data shows that the number of Bitcoin Lightning Network (Lightning Network) nodes is 35,217, a year-on-year increase of 2.81%; the number of channels is 86,876, a year-on-year increase of 0.3%; the network The capacity is 3,479.71 BTC, a year-on-year increase of 2%. [2022/3/6 13:39:54]

Honestly, you don't have much choice. Most projects focus on crypto gambling. Of course, they wouldn't say that. They gloss it over with "revolution" and "disruption" but the truth is they all intend to copy the YFI model. Until last week, those few projects that were able to create something interesting were limited by the new topic of automated market makers (AMMs), liquidity and yield farming (referred to as liquidity mining), and influence farming.

Influence farming is not a well-researched topic, as the term itself was coined by the PowerPool team a few weeks ago. Influence farming aims to overcome the most common problem in the governance token space - voter apathy, and empower a minority of token holders by bringing them together. Additionally, the governance tokens in the pool generate income for their owners. By lending COMP, you can earn more COMP over time, which is important.

In a bullish market, any opportunity to profit from Defi looks good, and people get involved, not knowing how it will end for them. Due to the open source and transparent nature of Defi, every promising project will be replicated after its successful launch. People bought YFII, YFIII, and other YFI clones, and even YAM2 even though the original YAM failed. Now, even before its launch, PowerPool was cloned. History always repeats itself.

Let's recap. How many Bitcoin forks are still alive? There are only a few of them, and hundreds are dead. The same rules apply to Ethereum and Defi projects. The fundamentals of post-industrial economics are at play here: there is no cost to copy. You can easily copy the $1 billion Hollywood-produced movie, but you can never own the rights to the movie and its fans. You can quickly launch an Ethereum fork, but without a developer community, Ethereum Foundation, and strong user base, it costs zero and doesn't cost you a penny more.

There is no cost to copy, but you can never copy: community, development team, product already in use, including all integrations, liquidity, and Dapps built on top of it. After every hype, the dust settles, the clones die, and the originals continue to create real value in their way.

After the PowerPool paper was published, another project called Cream launched a testnet with very similar ideas, but in short it was just a forked version of the Compound code without any improvements. That didn't stop them from attracting over $30 million in mortgages in their first week. PowerPool is not in that rush, it looks like they have a solid technical background and relationships in the industry, which led to a partnership with Matic Network and plans to create the first L2 Defi lending product. Both projects are on my radar; Cream Token has launched while PowerPools CVP is in testnet. That means we'll see it grow over the next few weeks. Interestingly, CVP stands for Combined Voting Rights.

As I mentioned before, the clones will die when the dust settles. Build a portfolio with real tokens, not 2nd or 3rd generation clones. Interestingly, "high yield" cloning arose long before encryption. The mortgage derivatives bubble burst in 2008. Low-quality, illiquid assets were modeled as high-quality assets, earning AAA scores from credit rating companies. This approach makes them more powerful for traders and we all know how it turns out.

I'm looking for gems. I only look for gems. The original project has a strong creative, productive, research, R&D team. Everyone can copy the website, documentation, and open source Github code, but no one can copy community engagement, great products, integrations, and trust. What I care about is that it can generate billions of dollars in value in the future, but not immediately.

Author: PowerPool

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Bitcoin