Roundtable transcript: Where is the wind blowing? Looking for the next summer of DeFi丨2021 World Blockchain Conference

On July 25, the "2021 World Blockchain Conference Hangzhou" was held at the Academic Exchange Center of Hangzhou Future Science and Technology City. With the theme of "Infinite Future", this conference brought together more than 100 leading entrepreneurs and researchers in the blockchain and cryptocurrency industries from around the world. With a broad mind, they looked forward to the industry's imagination of an infinite future. The conference was hosted by Hangzhou Timestamp Information Technology Co., Ltd. (Babbitt).

Last year's DeFi Summer amazed us, and this year's multi-chain DeFi represented by BSC also performed well, so will the grand occasion continue? Where will the wind blow this year, GameFi represented by Axie Infinity or other fields? In this regard, blockchain KOL, founder of Benmo Block Chao Chaojun, IOSG Ventures founding partner Jocy Lin, SevenX Ventures founding partner Li Rongbin, MultiCoin Capital partner Mable Jiang, Foresight Ventures partner Forest Bai had a wonderful discussion in the roundtable forum "Where is the wind blowing? Looking for the next summer of DeFi" on the afternoon of the 25th. This roundtable was hosted by Pingfeng, the manager of Babbitt DeFi.

Screen: Based on the on-chain data, the community speculated whether Three Arrows Capital had liquidated its mainstream DeFi holdings. So, aside from price factors, what stage is DeFi currently at?

Mable Jiang: First of all, there is no need to judge the trend based on the trading strategy of hedge funds. After all, each hedge fund has the means of on-chain and off-chain transactions. Secondly, the overall on-chain DeFi yield will definitely decline slowly, which is a normalized process. At the same time, there will be more complex on-chain DeFi protocols such as transaction interest rates and volatility. Third, how to get centralized institutions to enter DeFi is still under exploration. Therefore, DeFi is still in the stage of being accepted by everyone.

Super Jun: In terms of DeFi yield farming, the yield is gradually falling. But in terms of the funds in DeFi, the stablecoins locked in the DeFi field are continuing to grow, reaching a limit of 76 billion US dollars. Funds are continuously flowing in, but it is still unknown what stage it has reached.

Jocy Lin: DeFi has reached the mid-game. In 2020, it took only three months for DeFi's locked-in volume to grow from 0 to 5 billion U.S. dollars, and less than 10 months from 5 billion U.S. dollars to 50 billion U.S. dollars. Unimaginable things have happened in the past year, including the realization of multi-chain DeFi, and many innovators have emerged in the DeFi field, and they are constantly working hard. Why is it called the mid-game? Because currently in the entire DeFi innovation cycle, popular and large-scale applications have not yet been seen, but some of the original products have begun to expand their boundaries, including the aggregation trading platform 1inch to start getting involved in the wallet field, and Polygon has also supported a lot of DeFi protocols. Under such circumstances, multi-chain has actually become a hot spot, and DeFi protocols will sink more and more.

Li Rongbin: DeFi Summer is a cyclical behavior, just like a pendulum. Last year's DeFi Summer was brought about by the invention of liquidity yield farming or the second pool, which is a great thing. However, this also created a lot of bubbles in the market. People gave great incentives to early liquidity providers by overdrawing the future price and circulation of tokens. The current stage of DeFi is very normal, just like a pendulum adjusting from extremes back to normal direction.
For the industry, DeFi is still in a very early stage, because the largest or most direct area of ​​blockchain is finance, and DeFi will be the most important area. If DeFi is compared with traditional finance, the current DeFi has only made some simple and primitive financial innovations on the chain. For example, loans are only mortgages, there is no credit, and there are no agreements such as structured derivatives, options and swaps. Although there are projects, the number of users is very small, and there are no institutions entering the market. Compared with traditional finance, DeFi is still in its infancy. Last year's DeFi was overgrown, and now it is just returning to normal. Therefore, the situation of DeFi has not deteriorated. We still need to continue to pay attention to the grassroots and basic innovations in the DeFi field and look forward to the next DeFi summer.

Forest Bai: DeFi is not a new thing, and it was not born last year, but it is undoubtedly still in a very early stage. In terms of users and asset scale, the number of independent addresses of the entire chain DEX is only about 3 million, while Robihhood, which has just been listed in the United States, has 18 million registered users, and it is just an Internet brokerage. If we compare it from the perspective of lending, the TVL of Aave and Compound is less than 20 billion US dollars, which is a big gap compared to the (probably inappropriate) debt scale of ICBC of 4 trillion US dollars. In addition, in terms of product maturity, DeFi's current products are very simple, and there are still many problems that have not been solved, such as capital utilization efficiency, slippage, derivative pricing, and liquidity. In terms of usage threshold, the current interactive experience of DeFi is not suitable for ordinary users, which goes against the original intention of DeFi. In this regard, if the usage threshold of DeFi can be lowered, the entire DeFi market still has more than a hundred times of space. In addition, for the market, as a long-term institution, what needs to be done is to follow the technology cycle and go against the market cycle. We like this stage very much. A good hunter must be good at waiting.
Screen: Many overseas analysts hope that DeFi can break away from the influence of the broader market and develop an independent trend, but it seems that the momentum is weak at present. What do you think about this?

Mable Jiang: DeFi itself is normalized and is also an application. Ethereum is just a popular platform for existing DeFi, and other chains may appear in the future. Overseas traditional funds believe that Ethereum is a means of production, while Bitcoin is a value storage. From this perspective, in the general trend, the market share of Bitcoin will continue to decline. I think from a longer-term perspective, DeFi will be less and less affected by the overall market.

Super Jun: Bitcoin may be driven by faith, while various DeFi projects are driven by business. These are two different driving forces. It’s just that the value of Bitcoin is currently seen more by the outside world, so there are two forces: the first force is the enthusiasm of foreign mainstream institutions for Bitcoin, and the second driving force is the demand for internal liquidity for various DeFi projects. At present, from the perspective of miners using DeFi projects, what is available now is lending and DEX. In the future, the protocol capture fees, including prices, may also be out of the influence of the so-called market, but the probability is relatively small, because there are thousands of DeFi protocols, and there are indeed many bubbles.

Super Jun, founder of Benmo Block

Screen: When Layer 2 is fully rolled out, what are the expectations for DeFi? What do you think of the competitive landscape of multi-chain DeFi?

Jocy Lin: Layer 2, multi-chain, and DeFi are three different levels. Let me first talk about the concept of Layer 2. From the perspective of zero-knowledge proof technology, Layer 2 can be divided into zk-SNARKs and zk-STARKs. These are decentralized solutions, but the most popular Layer 2 this year is just the opposite. It is a centralized Layer 2, such as BSC and Polygon.

From the perspective of multi-chain DeFi, it can be divided into two parts: one is from the perspective of the protocol, and the other is from the perspective of the user. From the perspective of the protocol, comparing Uniswap and Sushiswap, these two different DEXs are currently the top two platforms, but their strategies are very different. Sushiswap does everything it can to deploy trading platforms on multiple chains. Uniswap, on the contrary, is very cautious and strict in choosing infrastructure. Sushiswap is currently on many platforms, including Polygon, BSC, etc., and may also have Solana, mina, etc. in the future, but it may be very difficult to capture value on these platforms. On the contrary, on BSC, the most popular DEX is Pancakeswap, and on Polygon, the most popular DEX is Quickswap. Both platforms are quickly building communities and implementing incentive plans on extended ecological platforms, but Sushsiwap is difficult because it only does extended communities and incentive plans on Ethereum, so it is equivalent to migrating to other multi-chain platforms, and will not allocate or corresponding incentives, which leads to the possibility that its multi-chain strategy may fail.

The current situation is very straightforward. I prefer an indicator called TV/TVL, which is the comparison of transaction volume and locked volume. It can be found that Uniswap is close to 26%, Sushiswap is close to 6%, Quickswap is 10%, and Pancakeswap is 16%. It can be seen that the Sushiswap data is far lower than the other three. Is it possible for so many chains to lead Ethereum in DeFi? It seems not possible at present. At present, Ethereum is still the largest, fastest and best innovation platform. However, the new Layer2 platform has also been welcomed because of its lower handling fees. As for Polkadot, NEAR and other platforms, they have begun to come up with some Layer2 solutions or DeFi strategies, but it still takes some time.

Another point is that from the user's perspective, the sidechain solution meets the needs of new markets. Most of the new markets this year are from emerging markets such as Thailand, India, and Vietnam. They have become the main force of transactions in the entire DeFi. They are new growth users, and they are very sensitive to Ethereum's Gas Fee and prefer cheaper platforms. In addition, they don't care whether it is decentralized, as long as they can make money by trading. If such user habits are cultivated, there will be a certain threat and impact on the technical community or the promotion of Layer2 solutions in the future. In the multi-chain DeFi ecosystem, we are still firmly optimistic about platforms such as Ethereum. Although they are already in the forefront, they are still at the forefront of product iteration and innovation.

There will still be a lot of small and beautiful opportunities in multi-chain DeFi. There will also be some differences in innovation. But it remains to be seen whether the DeFi protocol of the mainstream Ethereum platform can be migrated to the multi-chain platform.

Jocy Lin, Founding Partner of IOSG Ventures

Screen: If Ethereum’s challenger can challenge Ethereum’s status, what characteristics will it have?

Li Rongbin: We have always compared different public chains to different countries. There are countries with high GDP, abundant innovation, and high per capita GDP, such as the United States; there are also countries with large overall GDP but low per capita GDP, such as Southeast Asia. Ethereum is like the United States, where the cost of living is relatively high, which means that the cost of on-chain transactions is relatively high. In traditional countries, many countries cannot circulate freely, and there are foreign exchange controls and financial controls. But in the blockchain, you can farm on Ethereum today and move to BSC tomorrow. In the end, it depends on whose product is better.

Therefore, this does not mean that Ethereum's competitors should compete directly with Ethereum in DeFi, but how a newly emerging or latecomer country should achieve overtaking in terms of strategy. In addition, it is how to build its own ecosystem first. These are different strategies, and are not affected by whether the public chain is easy to use, decentralized, and the overall proportion and number of users. I look forward to a future where all public chains are interconnected, because this is the blockchain world.

Li Rongbin, founding partner of SevenX Ventures

Screen: If DeFi and traditional finance are to merge, what form will it take?

Li Rongbin: CeFi+DeFi may be a possible form. In 2018 and 2019, a company in Vietnam helped users operate DeFi to make loans, allowing ordinary Vietnamese people to enjoy the benefits brought by blockchain. This is a good direction. If traditional finance and traditional large institutions want to enter the market, they must think about how to get ordinary people involved and how to make ordinary people make money.

Forest Bai: DeFi itself does not necessarily have to be separated from traditional finance, nor does it have to confront traditional finance. This is wrong. DeFi is to solve some problems of traditional finance and allow more people, more long-tail groups, to use infrastructure quickly and at low cost. Therefore, there are many points of cooperation here. DeFi and traditional finance will mainly cooperate in the short and medium term, but it is still unknown what the future world will look like.
First of all, there is no doubt that the high yield of DeFi is attractive to traditional institutions. DeFi can provide a more fair, open and transparent trading venue for traditional assets with 7×24 hours trading through synthetic assets, and the on-chain of physical assets also solves the liquidity problem of some long-tail assets. For DeFi itself, traditional institutions are also needed to bring larger funds and more asset types. The entry of traditional assets should be welcomed to make the pie bigger. Of course, there are many problems, including compliance, supervision, technology, and scenario issues that have not yet been resolved, but this is both a pain point and an opportunity.

Screen: Where will the wind blow next summer? Which track will lead the way?

Forest Bai: It is reasonable that the DeFi track is currently dominated by DEX and lending. This is because the technology and products of DEX and lending are relatively easy to implement, and it is also the most important basic demand among the DeFi Lego blocks. Only with these two can other applications be developed later.

Although there are many blue chip projects in these two tracks, there are still many opportunities, especially in the field of lending, because different customers have different needs for lending. In this regard, if a small part of the needs can be solved, some unicorn projects and institutions are likely to be born. In addition to these two tracks, there are also many derivative opportunities. Including how to lower the entry threshold for users, or how to aggregate DeFi protocols, there are many opportunities.

Since it is midsummer, let's enjoy the unexpected market. From the perspective of expectation gap, the combination of DeFi and NFT has great opportunities, because Metaverse has created a lot of NFT assets, and the NFT in Metaverse is different from the NFT of traditional artworks and collectibles. It has usability and can be used to play games to make money, mortgage, and borrow. These NFTs have the attributes of both tokens and mining machines and traditional assets, and there is a lot of room for imagination. The combination of DeFi and Metaverse will have unexpected opportunities in leasing, liquidity, and asset management.

Forest Bai, Partner at Foresight Ventures

Jocy Lin: GameFi, including the new P2E game model, is also a kind of liquidity income farming. It does not use assets to farm income, but time. But looking back, GameFi is still a long way from DeFi. The innovation of DeFi's original ecology is still a long way to go, and there are many directions. DeFi must flow like water and be combined like Lego blocks. In this case, DeFi will move from high-frequency lending transactions to low-frequency directions, including insurance, synthetic assets, derivatives and other directions of innovation. These are all very segmented tracks.

In the coming year, we are very optimistic about the new track of derivatives and synthetic assets. There are still no unicorns in this track, and the competition is still very fierce. Different derivatives teams have different solutions, different platforms, and different designs. How to create more diversified assets on these platforms, such as new stocks, various altcoins or stock hedging, will become very interesting. In addition, the composability of the protocol can create very high value, which is also what we should pay attention to now.

Mable Jiang, Partner at MultiCoin Capital

Screen: How to seize the next summer?

Super Jun: It depends on the person, but I personally recommend DeFi yield farming. Because in this process, you will know the real operation of the project, which is conducive to risk control.

Mable Jiang: It is recommended that you stay on the scene and do it yourself.