DeFi struggles among exchanges, hidden concerns about traffic behind the craze

Author | Deepchain66

Just like when one reaches the end of practicing a magical skill, there is always an invisible barrier. Centralized exchanges are now also facing this problem.

In 2020, the Matthew effect became increasingly evident in the exchange sector. The strong became stronger, the barriers were high, and it was difficult for new exchanges to make further progress.

Exchanges are anxious.

In order to seek new breakthroughs, exchanges want to hold on to various hot spots in the market tightly.

There are contracts and orders in front, and Filecoin in the back. In order to break through this barrier, exchanges dare not slack off.

Now that DeFi is popular, exchanges have once again begun trying to make a breakthrough.

" Crazy for DeFi coins "

DeFi has been very popular recently.

Since June this year, Compound, a lending protocol in the DeFi field, has launched "lending mining", and its governance token has rapidly soared from around US$18.5 at the beginning to around US$377, an increase of more than 20 times.

The huge profits in a short period of time instantly ignited the entire cryptocurrency circle, and the popularity of DeFi soared.

On August 24, DeBank data showed that the total value of assets locked in the Ethereum DeFi protocol exceeded US$8.3 billion.

The concept of DeFi is very popular, and centralized exchanges are not to be outdone, competing to launch DeFi project tokens and contract products.

First, COMP was listed on 52 exchanges at a rate of nearly one exchange per day in just two months. Then, YAM was listed on 5 exchanges in one day, and CRV was almost launched simultaneously with HBO.

Take YFI, which appeared on July 27. In just about two months, it was listed on 56 exchanges including Binance and Huobi. Even YFI's forked currency YFII was listed on 23 centralized exchanges.

Some people say that the competition between exchanges is ultimately a competition of capital, traffic and product technology. When capital and product technology are on par, the competition for traffic has become the focus of major exchanges.

Some people also say that in 2017, the competition for traffic may come from ICO; in 2019, the focus of traffic will be on IEO; in 2020, DeFi will be a new growth point for exchange traffic acquisition.

Some people even compare DeFi to the ICO in 2017, believing that whoever masters DeFi will have the upper hand in the upcoming bull market.

In order to seize this opportunity, exchanges are rushing forward one after another.

At the beginning of 2020, the total market value of DeFi was approximately US$800 million to US$900 million. However, starting from May, DeFi suddenly began to soar like a drug, breaking through US$2 billion, US$4 billion, and now US$12.127 billion. This figure is already comparable to the market value of USDT.

According to the latest data from blockchain data index company The Graph, the number of monthly DeFi queries exceeded 1 billion in June. In the previous few months, the daily query volume on The Graph hosting service was between 20 million and 30 million, but in June, the daily query volume reached 40 million to 60 million.

According to Google Trends, since July this year, the number of searches for the term DeFi on the entire network has skyrocketed, from 46 to a maximum of 100.

Such a huge amount of traffic is of self-evident importance to exchanges today as the Matthew effect becomes increasingly obvious, exchanges are caught in internal competition and are competing for existing stocks.

“ What are exchanges worried about? ”

The popularity of DeFi has attracted more and more people to participate. As a decentralized financial product, users often choose decentralized platforms such as Uniswap during their participation.

If centralized exchanges do not open entrances on their own, then the wasted user traffic will bypass the exchanges and flow directly into the DeFi platform.

The high market value, good potential and considerable user traffic have become the reasons why centralized exchanges choose to launch DeFi projects.

In addition, DeFi projects generally give priority to listing on platforms such as Uniswap. But at the same time, platforms such as Uniswap often have various defects, and to a certain extent, they are not the best choice for users.

This also brings opportunities for centralized exchanges to launch DeFi projects.

Compared with traditional exchanges, decentralized trading platforms such as Uniswap have complex operations, unstable slippage, and high gas fees. When Ethereum is congested, it takes a long time for users to deposit or withdraw funds.

In addition, on Uniswap, there is no need to conduct KYC/AML audits on users on the platform, and there is no audit mechanism for project tokens traded on the platform. As a result, a large number of fraudulent projects have appeared on Uniswap, which has also damaged the user experience on Uniswap to a certain extent.

On the one hand, launching DeFi projects on centralized exchanges can provide users with a simpler channel for participation. On the other hand, the exchanges’ perfect and mature review mechanisms can further eliminate the “bad apples” in DeFi.

For example, Huobi launched the DeFi zone on August 13. Users can purchase various DeFi products on Huobi.

In addition, although it was a bit late, on August 26, OKEx also launched the DeFi trading area.

Therefore, whether from the perspective of DeFi itself or from the perspective of centralized exchanges' own interests, the launch of DeFi products on centralized exchanges seems to have become an irreversible development trend.

In fact, in addition to listing coins, many centralized exchanges, such as HBO, have begun to "attack" DeFi projects early on.

「 DeFi War of Centralized Exchanges 」

On August 3 this year, Huobi established DeFi Labs to manage a new fund. It is reported that it will invest tens of millions of dollars of its own capital to carry out research, investment and incubation of DeFi-related projects.

The establishment of an investment department has become another way for exchanges to deploy in the DeFi field after listing DeFi tokens.

OKEx also has a layout in DeFi.

For example, OKEx's public chain OKChain not only supports the release of DeFi applications, but also allows any user to publish their own decentralized exchanges on the chain.

OKEx CEO JAY said: OKEx has always been paying attention to the development of the DeFi ecosystem. As early as 2019, it connected with MakerDao's DSR to provide services to users. It is currently cooperating with the Compound team on Oracle applications. In the future, it will provide more ammunition for the DeFi ecosystem through various means such as OKChain, USDK, and OKB.

Compared with Huobi and OKEx, Binance actually started its DeFi layout early on.

In 2019, the decentralized exchange DEX based on the Binance public chain was launched. As of the end of July this year, Binance DEX has launched a total of 110 tokens and 135 trading pairs, and the cumulative transaction volume has exceeded US$800 million.

In addition, in May this year, Binance launched the Binance Smart Chain, a programmable extension that is compatible with the Ethereum ecosystem.

As we all know, the explosion of DeFi is inseparable from the public chain, and the public chain with the highest market value and the most concentrated applications is undoubtedly Ethereum.

Through Binance Smart Chain's compatibility with Ethereum, Binance has also completed its conquest of the DeFi field.

In addition, Binance's platform coin BNB also played a role in Binance's entry into DeFi.

On June 10, Kava DeFi lending platform CDP was launched, and BNB became the first collateral asset to join the Kava DeFi platform. At the same time, Kava also took out 3.848 million Kava from its own growth fund and distributed them directly to BNB holders who participated in pledging BNB and lending USDX.

After that, on August 6, OKEx CEO Jay Hao stated that the second half of the year will accelerate the construction of OKDEX in the OKB ecosystem DeFi field and other fields.

However, it is worth noting that according to non-small data, among the 31 DeFi projects currently counted, Huobi and OKEx have launched 12 and 13 trading pairs respectively, and Binance has more, with 16 trading pairs.

However, compared with some second- and third-tier exchanges that have launched more than 20 DeFi currencies, the response of the three major exchanges is a bit lagging. This reflects the attitude of the three major exchanges to seek stability, but also the eagerness of small and medium-sized exchanges to seek breakthroughs.

“MXC is like the Whampoa Military Academy in the DeFi field.” A player told DeepChain.

MXC can be said to be the earliest trading platform to enter the DeFi market. In the past six months, it has launched a number of DeFi projects including YFI, NEST, COMP, AVA, STONK, OKS, DF, BAL, etc.

But after that, DMG and BAL were listed on OKEx, NEST was listed on Huobi and Hobbit, and star currencies such as COMP and YFI were fought over by major exchanges.

MXC worked hard to "sow seeds" in the DeFi field but was "plucked" by major exchanges.

For example, on August 13, Huobi and Binance launched JST at the same time, which attracted great attention. But in fact, MXC launched JST as early as May 7.

Seeing the fruits of its own hard work being "taken away" one by one by other exchanges, the unwilling MXC Matcha specially released a list, which listed the time when MXC Matcha launched DeFi currencies and the time when the three major exchanges went online, in order to convey to users: it started DeFi much earlier than the three major exchanges.

A year ago, decentralized exchanges were still a wild land. This year, they have completely risen on the wave of DeFi, and the trading volume has hit new highs. In contrast to this offensive, many centralized exchanges have lost their former glory and are in a situation of drastic reduction in traffic and difficulty in operation. A major reshuffle of the industry is inevitable.

" CeFi is anxious, so get involved "

Although MXC has been frequently intercepted by other exchanges in this round of DeFi's "coin listing competition", MXC has stated that the previous launch of DeFi products was more of a defensive layout in the face of the threat posed by DEX.

It’s just that I didn’t expect DeFi to perform so strongly.

In fact, in the industry, there are still only a few exchanges like MXC that are wary of DeFi. More centralized exchanges (CeFi) have never taken DeFi, which has very small capital volume and traffic, seriously.

However, although the current market sizes of DeFi and CeFi are very different and not at the same level, in certain niche areas, the two sides have the opportunity to reach a tie.

For example, in the field of asset trading.

According to Dune Analytics data, the transaction volume of DEX on Ethereum reached nearly 3 billion US dollars in the first six months of this year, which has exceeded the transaction volume of DEX in the whole of last year.

Although centralized exchanges have already occupied the vast majority of the market share at present, decentralized exchanges are just small-scale operations. They have not yet formed a scale, their systems are not perfect, they are not smooth enough to use, their functions are not rich enough, and their ecology is not complete enough.

But in fact, the problem with DeFi is just because it is in its early stages.

We must see that the entire decentralized finance is slowly developing and its business scope is slowly expanding. After several tests of extreme market conditions, various risk control measures are also slowly being improved, although they are still far from perfect.

Moreover, in the field of asset trading, DeFi has unique advantages. It can greatly improve transaction efficiency and reduce transaction costs.

Seeing the development potential of DeFi, many centralized exchanges are currently trying to combine CeFi with DeFi while cooperating deeply with DeFi to gain better development space.

When you are unable to destroy the other party, becoming their friend becomes an option.

Take the three major exchanges’ public chains as an example. Without exception, they all focus on DeFi. Binance’s public chain focuses on DEX and has invested in many DeFi teams. OKChain focuses on DEX, DeFi, and smart contracts, and will launch OKEx DEX in the near future. As for Huobi, the only key development direction currently revealed by Huobi’s public chain is DeFi.

The question of whether DeFi will replace CeFi may be difficult to answer, but for exchanges, this "war" on DeFi may last for a long time.