🔎The bull case for DeFi
In today’s newsletter:
🔎The bull case for DeFi
📊On-chain alpha
😂Crypto meme of the week
🗞️The latest DeFi news
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🔎The bull case for DeFi
There’s been a lot of discussion lately on Crypto Twitter about DeFi.
Ethereum co-founder Vitalik Buterin made some controversial comments about it, and I also wanted to share my take.
DeFi is by far my favorite crypto sector. Yet unfortunately it is true that the majority of DeFi protocols are based on unsustainable economic models.
Once their token incentives are over, most of their users stop using them. It’s a fact that most dApps fail in their first 2 years after launch.
Yet there are also many DeFi applications like Uniswap, AAVE, and Polymarket which continued to thrive even without token incentives.
And I believe there are plenty of reasons to be excited about the future of DeFi. Here are some of the main ones:
Tokenization will unlock a wide range of new use cases
The tokenization of financial assets can help DeFi to become a multi-trillion sector. BlackRock CEO also said a few times that he believes this is going to be the next big thing in finance.
The reason for this is simple.
Imagine being able to bring on-chain your stocks, crop share from real farmland commodities, US treasuries, and any other tokenized financial assets.
Why would this be such a big deal?
Because it would unlock a lot of new possibilities.
For example, you could use your tokenized stocks to provide liquidity on Uniswap in order to earn a yield or borrow against them on AAVE.
Tokenization not only enables easier access to TradFi yields for anyone in the world, but it will also unlock a higher level of capital efficiency.
Protection against centralized authorities
What happened in Canada 2 years ago showed how important crypto stablecoins, especially those that are fully decentralized (e.g. LUSD), are:
In 2022, Canadian authorities decided to freeze the bank accounts of the truckers protesting COVID-19 restrictions despite that this was unconstitutional. This event proved once again how crucial self-custody is.
In contrast, assets like BTC and stablecoins issued by DeFi protocols cannot be frozen unless you hold them on centralized exchanges.
They also can’t be frozen when you deposit them on a fully decentralized app.
Crypto offers a way of making sure that your own money is truly yours.
DeFi cuts out the middleman
Why would you use a DeFi protocol instead of a TradFi company?
Because in some cases, the services offered by the DeFi protocols can be much cheaper by removing the middleman.
For example, according to Messari, Decentralised Physical Infrastructure projects offer decentralized storage at prices ~78% lower than their centralized counterparts.
DeFi protocols can also use token incentives in order to increase the demand for their products. Many lending protocols are actually paying their users to borrow against their capital through token incentives.
The rules are the same for everyone
DeFi significantly increases the transparency in financial services.
Here it doesn’t matter where you’re from, what’s your age, your job, or your skin color. When using a dApp, everyone is treated the same.
In traditional finance, that’s not always the case. And on top of this, everything in DeFi is verifiable on-chain.
A CEX like FTX can lie about what they’re doing with the user assets without being caught before it's too late, but a decentralized protocol like AAVE can’t.
All in all, I believe that DeFi has a bright future ahead.
While it’s true that this sector has a lot of dApps that don’t generate any real value and are based on ponzi schemes, remember that this is still a nascent technology.
We already have plenty of highly successful DeFi protocols, and I’m convinced that their number will increase exponentially over the next years.
Cheers🥂
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On-chain Alpha🔎
BTC performance is right on pace with prior cycles
This is one additional reason why I remain bullish on crypto.
This bull cycle seems to be very similar in a lot of ways to the previous ones.
If you look at what happened in 2020 after the Bitcoin Halving, you’ll see that BTC moved sideways for several months post-Halving before it resumed the uptrend.
Crypto Meme😂
The latest developments in DeFi
Trader Joe revealed its roadmap, which includes launching an orderbook exchange, a DEX aggregator, and much more
Telegram CEO was arrested in France a few days ago. He was eventually released from custody but must remain in France
Sony announced the launch of its Ethereum L2 blockchain. The L2 is built using Optimism’s Op Stack technology
Stacks’s Nakamoto Upgrade Activation has begun. Nakamoto will bring a 100x improvement in transaction speeds on the network
GammaSwap announced its airdrop and its upcoming LBP event that starts tomorrow on its own website
Rabby Wallet announced plans to enable paying gas fees with stablecoins
Donald Trump started a Telegram Channel for his upcoming DeFi project
NEAR’s Nightshade 2.0 sharding upgrade has been completed. This brings major network performance improvements and introduces stateless validation
MakerDAO rebranded to Sky and introduced its new SKY token. MKR holders will be able to upgrade their MKR to SKY and get 24,000 SKY per MKR
Lyra Finance has rebranded to Derive. Derive is an ecosystem of programmable derivatives products
Puffer Finance revealed its token launch will happen in early Q4
Radix announced a $37M Ecosystem Development Fund
Russia unveiled plans to launch 2 State-linked crypto exchanges. In addition, Russia will also release a new stablecoin that will be linked with the Chinese yuan
Aave announced Aave V3 deployment on ZKsync Era
Story, the World's IP Blockchain, raised $140M in funding
That’s all for this week!
Until next time,
The DeFi Investor
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