In 2022, the cryptocurrency market suddenly encountered a bear in the way of the bull market, the entire market turned sharply, and there were many sorrows. Against this backdrop, the situation for most DeFi tokens is even worse than that of Bitcoin or Ethereum.
The price of DeFi tokens has been in a downward trend relative to ETH since at least October 2020. By tracking the DeFi Pulse index of major DeFi tokens, we can see that the price of DeFi tokens relative to ETH has fallen by 69% in the past year alone.
The underperformance of most DeFi tokens against ETH can be explained by the highly inflationary design of most DeFi token economics and the lack of redistribution of income to token holders in this part of the protocol. For example, Uniswap’s UNI token can only be used as a governance token, and the transaction fees generated by its protocol are not distributed to UNI holders.
By comparison, at the time of writing, Ethereum validators earn about 4.2% for staking ETH. Also, ETH inflation is low or even negative (on some days) due to the fee-burning mechanism of Ethereum falling.
Earn rewards for securing the Ethereum network: Staking is a public utility for the Ethereum ecosystem. Any user with a certain amount of ETH can benefit from notifications that help secure the network.
It is precisely because of the above phenomenon that I tried to analyze the roadmaps of 25 major DeFi protocols to see what specific plans these protocols have for the next step. As the Irons see it, most DeFi protocols are redesigning their token economics, working on new iterations to build more efficient protocols, and looking to further their points of failure Decentralized.
What is the next step for DeFi protocols in the future?
In this research, I analyzed 25 major DeFi protocols.
Also, I excluded some large-cap protocols from my final assessment, mostly because they didn’t have specific information on what’s next, lack of explanation for the lack of a roadmap, or the community’s unresponsiveness to questions on Discord .
Future plans for major DeFi projects
Irons can view a full list of projects, roadmap details, timelines and sources of information in this form. I’ll update the table as more details emerge, and if you’d like to contribute to the research, reach out to @DeFiIgnas on Twitter.
What are the seven major trends of DeFi protocols in the future?
Growth of protocol-owned stablecoins
If you looked at the table provided above, you might be surprised that I included Shiba Inu in the analysis, isn’t it a meme coin?
Interestingly, Shiba has been building a whole DeFi ecosystem around its brand including their own second layer blockchain, Shibaswap exchange, Metaverse and their own stablecoin SHI.
Shibarium is building an ecosystem around its $SHIB meme token: automated market maker $BONE
mining Card Game Reward Token TREAT
Shiba is not the only project with stablecoin ambitions. Following the recent launch of NEAR, Tron, and Waves blockchain stablecoins, DeFi protocols Aave and Curve are also planning to launch their own stablecoins.
While not much information has been officially released about Curve USD, Aave has revealed the mechanics of its GHO stablecoin.
Protocol-owned stablecoins (POSCs) add a new revenue stream to the protocol, while also bringing additional use cases to the token, increasing its demand, and improving returns for liquidity providers.
If protocol-owned stablecoins become widely adopted, it should attract more capital to the protocol, as liquidity providers can now free up locked capital and extract value outside of the native protocol.
Increase adoption of ve token economics
Curve Finance pioneered so-called ve token economics, where token holders stake their tokens for a period of time in order to generate higher yields for themselves and vote on liquidity mining allocations.
This model unlocks new ways to play in DeFi, the rewards of liquidity mining tokens are immediately sold to prevent mercenaries from doing DeFi mining, and more projects are now opting for ve token economics.
- Yearn Finance is expected to launch veYFI in mid-August with a 4-year lock-up period, and the locked tokens will not be transferable.
- Synthetix will use the veSNX gauge (guage) for inflation weighting.
- Pancakeswap will also “soon” launch vCAKE for reward weight voting.
I wouldn’t be surprised if Compound Finance also transitions to ve tokenomics in the future, as they have completely stopped the liquidity mining business due to mercenary mining.
Lastly, it’s worth noting that ve token economics has attracted “aggregation” layer protocols such as Convex’s Curve and Aura Finance’s Balancer. We can expect this aggregation protocol to further launch veSNX, veYFI and vCAKE.
Focus on progressive decentralization
In 2020, a16z wrote an influential guide on progressive decentralization of cryptocurrency applications, which is still very relevant in 2022.
Progressive Decentralized Pocket Guide
As projects build product and market fit, financial sustainability, participatory communities, and regulatory compliance, they should seek to reduce their single point of failure — centralization.
Against this backdrop, many protocols have announced clear roadmaps:
- dYdX has announced the fourth version with a mission to fully decentralize the protocol. It includes a fully decentralized, off-chain, order book and matching engine.
- The Graph is working on ‘change hosting’, migrating all centralized hosting services to a decentralized web. Migration is expected in the first quarter of 2023.
- Ren is gradually decentralizing its RenChain as it is currently mostly centralized.
- Lido voting does not limit the amount of ETH staked, but the protocol plans to achieve decentralization by employing distributed validator technology.
- Maker’s ambitions for decentralization are evident in the recent rejection of a “governance committee” vote and an announcement of the final game roadmap. The proposal includes the creation of MetaDAO (subprojects of MakerDAO, each governed by their own tokens).
Introduce new iteratively upgraded protocols
Cryptocurrencies and decentralized finance are developing fast. You either adapt quickly to change or you get left behind.
To keep up with the rapidly evolving market, several protocols are about to roll out major upgrades to change the way their protocols work.
The details are as follows:
- Synthetix V3 will allow for the freedom to create synthetic assets, transfer to veSNX meters and time locks, differentiated pools of debt that collateralize specific asset pools and receive fees from them, without touching each asset.
- Compound Finance will launch Coumpound III, collateralized by a single borrowable asset and other assets.
- Nexus V2 will allow consortia (those who manage underwriting capital) to build on a mutual infrastructure. Delegate staking is created, and its coverage policy will come in the form of NFTs.
- dYdX V4 will be developed as an independent blockchain based on the Cosmos SDK and Tendermint Proof of Stake consensus protocol.
- Sushi 2.0 (mostly deployed) has become a hybrid exchange with a bunch of innovative money LEGO protocols and NFT marketplace Shōyu coming soon.
- Yearn V3 will be launched around mid-September this year with new token economics and strategies for better security, flexibility.
- Rocket Pool is quietly building at least 3 massive scaling solutions to grow its staked ETH.
- GMX is developing an X4 protocol controlled exchange, PvP automated market maker and support for any transaction with Chainlink oracles.
The future is multi-chain coexistence
This is so evident that even Compound has a multi-chain strategy for its Compound III.
However, there is no competitive advantage for the protocol to simply be deployed on several chains. To better improve the multi-chain experience, some protocols go a step further in integrating native assets without third-party bridges.
- Sushi recently launched the Stargate-based SushiXSwap decentralized exchange.
- Ren is working with Catalog to build a Metaversal exchange based on the Ren blockchain. Its vision is to create the most secure cross-chain decentralized exchange with built-in liquidity mechanisms and functions similar to centralized exchanges, allowing users to easily exchange assets on the most popular blockchains.
- MakerDAO’s End Game features Maker Teleport – a second-tier network bridge system that allows quick withdrawals from Optimistic Rollups.
- Lido runs stETH on the second layer network
- Convex supports boosted pools on sidechains/layer 2 networks.
Increase the reach of Uniswap V3
Uniswap’s V3 introduces centralized liquidity, which can be allocated to a price range, improving capital efficiency.
While this change isn’t the best for user experience, the momentum has been picking up.
Osmosis is working towards a centralized liquidity mechanism, and KyberSwap recently launched KyberSwap Elastic with the same functionality.
More importantly, KyberSwap’s Elastic offers different fee tiers for liquidity providers. This is an innovation first introduced by Uniswap’s V3.
Expanding Token Use Cases
DeFi and the wider cryptocurrency community have criticized DeFi protocols for a lack of token use cases.
Note that some protocols have rolled out some improvements to make tokens more attractive to holders:
- Chainlink announces Economics 2.0, which includes staking of LINK.
- CAKE’s token economics capped CAKE at 750 million tokens, and introduced accelerated mining earnings, IFO benefits, and weighted voting.
- Maker will launch liquidity mining for MKR and even DAI holders while other protocols reduce liquidity mining. A lot of mining rewards for Maker are coming, make sure you read the full roadmap details here.
One more thing, the transparency and clarity of protocol team building is very different even among the top DeFi projects.
Some projects have very clear roadmaps and implementation details (with YFI, SNX, and MKR being the most open), while some projects don’t disclose their roadmaps at all, or communicate poorly (UNI is the most closed).
DeFi is here to stay
Despite the market crash and entering a bear market, the DeFi team is making significant improvements that hopefully will make DeFi tokens more attractive. I’ll be monitoring progress on these roadmaps, so follow me on Medium and Twitter.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/forging-ahead-the-seven-trends-of-the-future-defi-protocol/
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