Today’s DeFi market is gradually becoming boring with too few innovations from 2022 until now. So, let’s find out in the article below how DeFi and the increasingly lack of creativity are actually happening.
To better understand DeFi & the increasingly lack of creativity, people can refer to some of the articles below:
- What is DeFi? All About DeFi
- What is Fork? The Difference Between Hard-fork And Soft-fork
A Look Back at DeFi Market Indicators
According to DeFiLlama, today we have thousands of different DeFi protocols in areas such as Liquid Staking, Lending & Borrowing, AMM, Derivatives, Cross-chain, Yield Farming, Launchpad, NFTFi, Real World Asset,… Look Looking closely at each Blockchain we see that:
- Ethereum: 937 protocols
- BNB Chain: 656 protocols
- Polygon: 490 protocols
- Arbitrum: 470 protocols
- Optimism: 182 protocols
- Fantom: 302 protocols
- Avalanche: 340 protocols
- Solana: 113 protocols
Looking deeper into each segment in DeFi, we see some additional numbers as follows:
- Liquid Staking: 123 protocols
- Lending & Borrowing: 311 protocols
- DEX: 1062 protocols
- Bridge: 46 protocols
- CDP: 107 protocols
I believe that these are just truly incomplete numbers from DeFiLlama and the actual number could be up to double this if including protocols that have stopped working due to various issues. Looking at the above numbers, we will certainly think of a DeFi full of color and innovation, but in reality it is not like that.
99% of DeFi projects on the market copy existing models, sometimes adding hair and beard to have more product diversity. So how unimaginative the DeFi picture really is and what negative impacts it causes, everyone will find out with us in the next content.
DeFi & An Increasingly Lacking Creativity
Picture of DEX
If we take the index from DeFiLlama, today we have more than 1,000 decentralized exchanges. And we will review AMMs that have recently or in the past brought reforms to the entire DeFi market:
- Uniswap: With Uniswap V2, Uniswap strives to become the largest AMM in the Crypto market and this model is also the most copied model in the DeFi world today. Later, Uniswap V3 with its centralized liquidity model continued to shake up the DeFi market.
- Curve Finance: By changing the algorithm from x * y = k to the algorithm x^3y + y^3x = k, it has created a turning point for the trading of price-equal assets such as Stablecoin, Sythetic Assets,…
- Balancer: Balancer uses a model with different liquidity pools, not a 50 – 50 ratio. However, Balancer has not achieved the expected achievements.
Above are the AMMs that bring the biggest difference with breakthroughs in the Crypto market. Next we will come to AMMs with an innovative direction, meaning AMMs improve what is already there, thereby creating new breezes for the DeFi market.
Some outstanding projects include:
- Trader Joe’s: Based on the centralized liquidity inspiration of Uniswap V3, Trader Joe built itself a centralized liquidity AMM with the Liquidity Book product and it actually solved a few problems of Uniswap V3.
- Orca: Also based on the centralized liquidity inspiration of Uniswap V3, Orca also builds centralized liquidity on its own with Whirlpool liquidity pools.
- Maverick Protocol: Also inspired by Uniswap V3, Maverick builds liquidity supply modes with different automatic strategies such as following price increases, following price drops, or automatically following price lines and identical modes. Uniswap V3 is not running.
- Solidly & copy versions like Velodrome, Aerodrome: Solidly does not bring a breakthrough from the operating model but is inspired to develop through improving the Tokenomics model.
Considering this aspect, we only have about 10 projects that bring real value to the Crypto market. The ratio will be 10 out of 1000 i.e. 1% meaning 1% of total AMM projects bring value to the entire AMM industry. Not only that, the Volume of the above protocols is about $2.5B out of $3.5B, accounting for more than 70% of the total AMM Volume of the market (at the time of writing).
Looking at such numbers we can already see how truly innovative AMM platforms bring real value. The remaining 99% of AMMs contribute less than 30% of the market volume.
Picture of Lending & Borrowing
The picture of the Lending & Borrowing segment is probably much less creative than that of AMM. However, let’s look back at some of the models that have made a difference and positive for the DeFi market in the past period.
- AAVE & Compound: The transformation from Lending P2P to Lending P2Pool has probably changed the face of the Lending & Borrowing industry. Besides, Compound V2 with cToken representing user liquidity in the pool can also be considered a strong innovation for future LP Token concepts.
- Maker DAO: The CDP Lending model is probably a model that was introduced only once and has no later innovations.
Similar to AMM, there are also many projects in the Lending & Borrowing segment that also upgrade and improve the old model, thereby creating a new model with more advantages. Some notable projects with upgrades include:
- Solend: The Isolated Pool concept probably first appeared with the Solend project on Solana. If with AAVE and Compound there is a common liquidity pool for all asset types, this raises the problem of if one asset has a problem, the whole pool will be in danger or will limit the types of collateral. The Isolated Pool model allows assets to be independent of each other and makes it possible for the protocol to support a multitude of collateral types. Since then, there have been many protocols in this direction such as Silo Finance or Euler Finance.
- Morpho: The project combines P2P Lending and P2Pool Lending to bring higher yields to users. Normally, when users deposit money into Morpho, if there are P2P contracts, they will be matched immediately. If there is no liquidity, they will deposit that money into AAVE or Compound to get interest when the P2P contracts are withdrawn and lent out. . Morpho has a relatively high amount of TVL along with relatively positive business results.
Besides having new models, Lending & Borrowing is also integrated into Yield Farming protocols to become Leverage Yield Farming platforms or some Derivatives platforms. However, with the total number of projects bringing innovation to the market being 5 compared to the entire industry with 418 projects, this number is only about 1% like with the AMM segment.
When looking at TVL, the projects I listed above account for nearly 60% of the entire industry’s TVL, and if Justin Sun’s JustLend is eliminated, it accounts for nearly 80% of the industry’s TVL.
Just through the two simple examples above, we can answer some questions:
- What are the benefits of this new and groundbreaking model in the Crypto market?
- What are the benefits of being an industry leader?
- Is Crypto technology a cakewalk?
Personal Assessment of DeFi & the Increasingly Lacking Creativity Picture
Obviously in the Crypto market, Builders are few and Copy-ers are countless. Copy-ers here are mainly individuals who come to this market because the main factors are finance, scams, surfing, etc. .This factor makes the Crypto market in general and DeFi in particular increasingly lack creativity. Even Builders have to worry about their products being copied too quickly, leading to waste of brainpower, so the fact that Uniswap V3 hides contracts for 2 years and Uniswap V4 is currently 4-5 years is understandable, although Know that Crypto aims to be transparent, decentralized and anonymous.
Because of the excessive copying factors, the security of future copying projects becomes increasingly lax, thereby causing hacks, smartcontract and rugpul vulnerabilities to become too common, which also prevents users from participating. into DeFi.
DeFi’s lack of creativity also directly affects TVL and users. Nowadays, most users are only interested in buying and holding Bitcoin and Altcoins instead of putting them into DeFi.
However, it also creates a bit of an advantage for those who take the trouble to learn because if we spend a lot of time on Uniswap, Curve Finance, AAVE,… then with newly launched projects we can Easily evaluate the project and development team from there to have appropriate investment strategies. Besides, this factor helps us easily identify who is the real Builder in the Crypto market.
Summary
DeFi & The increasingly lack of creativity has become an undeniable fact in the Crypto market. Hopefully through this article, everyone will have a little more perspective on DeFi & Crypto.
