The madness continues, will NFT+DeFi lead DeFi summer2? | Online Classroom - Lieyun Finance

The future is full of possibilities!

Produced by | Lieyun Finance Author | Lingyu

On August 12, XCarnival CMO Vivi was a guest in the live broadcast room of Lieyun Finance Online Classroom, sharing her thoughts on NFT+DeFi.

01DeFi makes finance simpler

Lieyun Finance: DeFi has been popular since last year, and the popularity has continued. Many people have gained benefits from this wave, while some people have not really used DeFi products. How do you understand this wave of DeFi?

Vivi: The DeFi craze is essentially because it makes finance simpler and greatly lowers the threshold. People around the world can use the tools provided by the DeFi platform to manage their finances or investments as long as they have the Internet. They don’t even need a bank account to create trading contracts and trade between different assets. This is a huge challenge to traditional finance, and this game and challenge will continue for a long time.

Of course, at the micro level, DeFi has contributed a lot of financial innovation to the empowerment of the crypto field. For example, through cryptocurrency mortgage lending and POS mining to earn interest, more institutions and retail investors have a better understanding and recognition of the value of cryptocurrencies.

On this basis, DeFi projects have developed many new tracks, from the most basic DEX to lending platforms, aggregators, leveraged mining algorithm stablecoins, synthetic assets, etc., making DeFi functions gradually diversified. In addition, the wealth-making effect formed by the first mining of many DeFi projects on the Ethereum chain last year and the positive effects of BTC halving have promoted each other, making more people inside and outside the circle pay more attention to the DeFi field and more willing to try new DeFi platforms and products.

Our XCarnival is also a DeFi product, a synthetic asset protocol for the general public, hoping to bring an interesting, easy-to-use, and friendly product to the public, increase liquidity in the DeFi and NFT fields, and empower this field. This is also the reason why we named it "Carnival", and we are committed to creating a product aggregation place with various creative and fun things.

02NFT itself releases unlimited development space

Lieyun Finance: We often hear people say that NFT has broken out of the circle, and the fire of "everything can be NFT" has spread from crypto art to games, and then combined with finance. Why does NFT have the charm of crossing circles?

Vivi: Indeed, the breakthrough of NFT this year is very interesting. We need to understand this phenomenon from several different dimensions.

First, the macro environment - under the epidemic, the quantitative easing policies of central banks in various countries have made many institutions and individuals look to the field of encryption as a risk-avoidance tool. We have seen Bitcoin break through its historical highs before the New Year, and the total market value exceeded one trillion, which is a reflection of this factor.

Under such a trend, the art and game fields in NFT, as the parts that are most easily accepted by outsiders, have natural advantages in application. Compared with DeFi, a highly professional field like smart contracts can easily stop many outsiders from entering the field. NFT has the characteristics of visualization, and uses non-homogeneous tokens to record various forms of creation such as images, music, and videos on the chain.

The characteristics of NFT itself help to confirm the ownership of digital assets, realize an essential revolution, and ensure the uniqueness, scarcity and traceability of digital assets, which greatly releases unlimited development space.

For example, digital art assets and game assets, which are difficult to define in themselves, can be confirmed and traded. These areas are relatively easier for outsiders to understand and accept. We have seen art works sold at sky-high prices, collections of big IPs such as NBA Top Shot, music works released by top musicians as NFTs, and various games using NFTs as carriers to create blockchain games and "Play to earn" models, which are very conducive to the general public's contact and understanding of the NFT field.

With the public's attention, the combination of NFT and finance, from NFT financial bills to mining and other innovations, will be easier for everyone to accept. In the future, we will see more products that closely combine NFT and DeFi and innovate.

03Some of the top NFT projects have high entry barriers

Lieyun Finance: Although it crosses circles, NFT is still unfamiliar to many people. So what challenges are there for ordinary people to widely accept NFT?

Vivi: Indeed, although more and more people outside the circle may have heard of the concept of NFT, they often do not understand it and there is still a big gap between them to truly accept it and become a proficient player.

First, let's look at this problem from the user's perspective. Assuming that a person has never been exposed to the cryptocurrency world, it would be quite cumbersome to fully simulate the process of purchasing NFT works. The first step is to register and deposit funds on a centralized exchange, create your own wallet and save the private key mnemonic, connect to the public chain, transfer assets from the centralized exchange to the on-chain wallet, find the DAPP of the NFT trading platform, and then find the work you want to buy and pay gas for the transaction. With such a set of processes, it is easy for people who have never been exposed to the cryptocurrency world to get stuck in the middle, or even have more serious risks such as wallet theft.

Therefore, this practical process needs to be simplified. Fortunately, we have seen many leading projects working hard on compliance, striving to achieve a balance between centralization and decentralization, allowing users to pay with credit cards, etc., to better popularize usage.

Secondly, some of the top NFT projects have high entry barriers. For example, the currently popular PUNK and Bored Ape, even the lowest price has reached thousands of US dollars. Compared with BTC, which can be divided into very small units, it is difficult for some ordinary people to participate in it with their funds.

Moreover, compared with other assets such as cryptocurrencies, NFTs have a lower transaction rate and poorer liquidity. Coupled with the high threshold, most people are unwilling to buy NFTs for investment.

From the perspective of the industry, we are still in the very early stages of NFT. A lot of infrastructure needs to be built, including storage security, Ethereum's Rollup reform, etc. This requires the joint efforts of the entire industry.

04NFT asset prices have a certain bubble

Lieyun Finance: With the development of NFT and DeFi, there are some products on the market that have started to combine these two methods. So which combinations do you think are promising and valuable?

Vivi: Both NFT and DeFi are still in the very early stages, just like the development of the western region, everything is full of opportunities, but there are also many irregularities and uncertainties, which means that there will always be things that we can't imagine happening.

If we extend the example of the "Gold Rush" in the western development, we know that among the people who were panning for gold at that time, only a very small number of people dug up gold, but the merchants who provided tools for the gold rush, such as those selling jeans and shovels, all made money. The same is true for DeFi and NFT. Using NFT to conduct DeFi mining, turning NFT into a shovel or an interest-bearing asset, is a very important means of enabling NFT.

For example, Gamefi, a game that uses NFT for mining, represented by AXS, may derive more diverse forms beyond Gamefi in the future through NFT mining. Similarly, by staking DeFi tokens as shovels to mine NFTs, DeFi tokens can be empowered. Similarly, the mined NFTs can be empowered to improve mining efficiency, participate in NFT activities, etc. to increase the value of NFTs, so that DeFi tokens and NFTs can empower and promote each other. This type of gameplay is worth paying attention to.

Compared with NFT artworks that focus on the collection value of NFT, in the future, the combination of DeFi and NFT will make NFT not only a digital artwork or collectible, but also a high-quality investment product that includes artistry, functionality, identity, and community belonging. At present, it is an established fact that NFT assets have poor liquidity, low transaction rates, difficult pricing, and a certain amount of price bubbles, which limits the space for further development. Therefore, the track where products dedicated to solving these problems are located will also be a good development direction in the future.

05DeFi has the highest capital efficiency

Lieyun Finance: As leading DeFi projects such as Aave, COMP, and Uni gradually move closer to institutions and provide DeFi products to them, what innovative features do you think DeFi can provide for the traditional financial services industry?

Vivi: DeFi has unique decentralization and openness, no KYC requirements, and is global. Compared with traditional finance, it has irreplaceable advantages. First, it has a wider audience. DeFi users do not need a bank account to participate, and there are many unbanked people in the world.

50% of the population in the Middle East and Africa do not have access to banks and financial services, including the poor and women. In China, it is 20%, and in countries such as Vietnam and Mexico, more than 60% of the population is unbanked. However, the Internet penetration rate is much higher than this number, which means that DeFi can serve more people who have been abandoned by the traditional financial system.

From another perspective, DeFi has the highest capital efficiency. If traditional financial institutions access DeFi, they will directly access the global market. Even if they cannot do business directly with users due to compliance issues in the short term, they can still obtain a much higher rate of return than normal by investing in fixed-income products.

On the other hand, DeFi's major innovation to traditional finance is that it greatly reduces the friction in the operation of the financial system through blockchain. Uniswap, an exchange with a market value of 15 billion US dollars and a trading volume of nearly 1 billion, has only 30 employees in total. Can you imagine that? Nasdaq has thousands of employees. Therefore, DeFi will force traditional financial companies to start accepting innovation, because companies that do not accept it will face a huge blow in terms of operating efficiency and profits.

In terms of functions, in addition to decentralized exchanges, decentralized lending and other functions that extend on the basis of traditional finance, there is also a decentralized synthetic asset track, which is also a major innovative function. In the past, Wall Street required millions of dollars to synthesize assets, but DeFi has greatly lowered the threshold and can synthesize assets other than financial assets.

06

Fund security always comes first

Lieyun Finance: How do we judge whether a project (combining NFT+DeFi) is suitable for investment? What dimensions can we refer to?

Vivi: First of all, I need to state that I am not a financial advisor. All my sharing is for academic and educational purposes only and is not intended as investment advice.

We have talked about many exciting advantages and innovations of DeFi and NFT before, and I need to "pour some cold water" on everyone. It is understandable that many users are excited about DeFi applications, such as the high returns they can get through "Yield Farming", but the problem is that many high interest rates are actually unsustainable.

For example, Compound has high returns because it incentivizes both borrowers and lenders to enter the token pool. Users will receive Compound token rewards by borrowing or lending assets, which means that Compound pays people to use their products. Vitalik, the founder of Ethereum, once shared something before, and I agree with his point of view. He said, "In the long run, I can't find a reason why DeFi interest rates are higher than traditional financial interest rates, so this is not sustainable, and focusing only on high returns is not the right path."

This is not to say that DeFi is not worthy of long-term attention, but rather that we should abandon the speculative mentality and instead see opportunities in this field to truly solve problems and create more stable and secure projects.

From an investment perspective, I think the most important aspect is security. Excellent DeFi must put user funds security first. This can be reflected in the fact that they usually pass the audit of top audit companies, and some even configure various insurances, so that large funds dare to pledge on the project. It does not mean that having these is absolutely safe, but this is the most basic practice. For example, XCarnival's XBroker passed the audit of Certik, an international security audit company, and Megabox is also waiting in line for the audit.

On the other hand, you can also look at which projects have innovative features rather than just imitations of existing projects. For example, Uniswap is the first AMM DEX. Even if there are countless DEXs with similar features afterwards, it still cannot shake its leading position in the DEX track.

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