Golden Observation丨Will DeFi repeat the mistakes of the initial coin offering?

Golden Finance Blockchain, August 24th The use of decentralized finance (DeFi) is growing significantly, attracting more and more investors and widespread attention from the cryptocurrency community, including Wall Street, and this wave of cryptocurrency The current bull market is also led by it. This seems to make people see the prosperity of the initial coin offering (ICO) three years ago, so will DeFi repeat the mistakes of the initial coin offering?

First, we see that there are many similarities between the two. It is very obvious that both DeFi and ICOs are trying to "decentralize" existing business models, and both are building applications and communities through token speculation. They mainly choose some existing centralized business models in the market, and then decentralize them, all of which guide the early network effects through speculative token price appreciation. Moreover, they all use the rhetoric of "a decentralized version of a certain platform or a certain project" to attract people to enter and build the earliest community, creating a large amount of liquidity and obtaining economic benefits.

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Then, we cannot deny that both of them have had some impact on the Ethereum blockchain, such as rising transaction fees, network congestion, etc., but these impacts have also stimulated developers to research and invest in Ethereum scaling solutions. Today’s Ethereum network is still researching scalability with the emergence of many competitors focused on network scalability, and these expansion projects may accelerate development.

It’s also worth mentioning that the advent of DeFi and ICOs have both reduced the circulating supply of ETH tokens. Since participation in DeFi and ICO projects requires the purchase and locking of ETH or other tokens based on the Ethereum blockchain, the circulation of ETH in the market will decrease, a trend that usually supports price appreciation. Initial coin offering projects generally accept ETH as an investment token, and then provide new tokens to investors, and the project party holds a large amount of ETH; DeFi also provides investors with newly minted tokens in exchange for ETH or other Tokens based on the Ethereum blockchain.

Golden Noon News | A list of important developments at noon on February 12: 7:00-12:00 Keywords: Federal Reserve, Andrew Yang, Lightning Network, EOSIO, OKEx, Edgeware, PlusToken

1. Chairman of the Federal Reserve: The institutional backgrounds of China and the United States are completely different, and their attitudes towards CBDC are different.

2. Yang Anze, a Chinese-American candidate who supports cryptocurrencies, withdrew from the 2020 general election.

3. The Financial Services Commission of Korea and the city of Seoul will provide financial support for the cultivation of digital financial talents within 4 years.

4. National Bank of Egypt joins RippleNet.

5. Since January 2019, the Bitcoin Lightning Network nodes have increased by nearly 105%, and Europe and North America have 90% of the nodes.

6. EOSIO's latest transactions reached 9656 times per second, a new record.

7. OKEx CEO: OKB and OKT will not affect each other, and both OKB and USDK will be transferred to OKChain for operation.

8. The launch of the Edgeware mainnet of the Polkadot ecological project was postponed to February 17.

9. Over 10,000 BTC transferred by PlusToken yesterday have been split into single digits.

10. BTC is currently at $10,278, up 5.47% in the past 24 hours, with a market value of $187.031 billion. [2020/2/12]

We can see that the boom in initial coin offerings started “slowly” from long-term venture capital funds, and then attracted a large number of retail funds to enter the market and accelerate development. It can be said that the prosperity of the initial coin offering market began with venture capital companies and angels Investors injected funds into the Ethereum ICO project, and then as more and more retail investors in the crypto community began to invest, technological innovation and early investment success provided support for many subsequent ICO projects. In the same way, the DeFi boom also started with those VC firms and angel investors who focused on early-stage investment, and now a large number of projects in this field have launched and attracted more "fast-moving" funds.

Golden Finance News: The Zug state government in Switzerland supports the trade alliance to develop blockchain technology. [2017/10/19]

However, from a regulatory point of view, there are obvious differences between the two models of ICO and DeFi. Most initial coin offerings will be recognized as securities sales by regulators, while DeFi tokens are considered an "exchange", which means that tokens issued by some DeFi projects may not be recognized by regulators as securities, or are not subject to the securities laws. Therefore, DeFi may be more beneficial to ETH than ICOs, not only that, but ETH can be recycled quickly between projects due to investors "farming" new tokens.

In addition, the product target user base of ICO projects and the natural investor base of ICO tokens are two completely different groups; while DeFi has a relatively modest range of use cases, and these use cases basically follow the "crypto-native "Essentially, what DeFi provides is real encrypted transactions, and it provides loan services and distributes tokens to the same type of target customers, and then allows investors to immediately become project users, which can also enable the community to develop faster.

Golden Finance News: Affected by the Bitcoin trading platform: "Bitcoin China" will stop all trading operations on September 30, the domestic Bitcoin price fell from the highest point of 25288.02 yuan to 20588 yuan, a drop of 23%. [2017/9/15]

Another difference that has to be mentioned between the two is that although many DeFi project activities may benefit from temporary token incentives to "circulate", these activities are all "real" activities, only in the form of liquidity form provides instant value to cryptocurrency traders. In contrast, most ICO projects never release a usable product.

Not only that, other protocols are starting to follow in Ethereum’s footsteps in order to better support ICOs and DeFi, but Ethereum still has the vast majority of ICOs and DeFi’s trading activity. For the ICO, the ERC-20 token launched by the project party has the advantage of "combinability" and has a wide range of infrastructure support foundations, such as supporting multiple digital currency wallets and being easy to add to exchanges. For DeFi, the "composability" advantage may be further expanded, because DeFi protocols usually interact more extensively, and cross-chain solutions are still in their nascent stage.

I hope that this DeFi boom will not be a flash in the pan. With the current high liquidity, DeFi projects can actively optimize their products and become an evolutionary version of the initial coin offering.

Part of this article is compiled from Yahoo Finance

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