Synthetix founder: DeFi summer is not the pinnacle, the magnificent future of it and Ethereum is in sight

Synthetix founder Kain Warwick talk DeFi next trend, he thinks Ethernet Square and DeFi about to usher in a more splendid future.

Written by: Kain Warwick, founder of Synthetix Compiler: Perry Wang

1/ I want to fulfill my previous promise and talk about the next step of DeFi and why last year’s “DeFi Summer” was not the peak. My writing is a bit of self-releasing, so this will be a long series of pushes.

2/ The original tweet I responded to is here.

3/ It is irrefutable that every old DeFi token outperformed the ETH market last year . In hindsight, this is really not surprising. In the frenzy of the DeFi Summer, the DeFi blue chip project is not only the dominant value narrative of Ethereum, but also the only value narrative.

4/ With the emergence of new value narratives, many people have switched from DeFi tokens to investing in NFTs, and DeFi has fallen into a trough of disillusionment.

5/ Coupled with severely unfavorable regulatory winds and market uncertainty, it is normal for investors to lack confidence in the future of DeFi. But the future is actually brighter than ever before. We just need to look at the big picture.

6/ Let’s go back to 2016. The early Ethereum community was very diverse, and so was the value narrative: governance, identity, prediction markets, tokenization, decentralized exchanges (DEX), stablecoins, capital formation, of course There is also a Decentralized Autonomous Organization (DAO).

In the middle of 7/2016, the DAO managed to combine many of these value narratives, creating the first concrete example of the power of Ethereum smart contracts, and of course, it was accompanied by danger.

8/ Watching $150 million pouring into smart contracts and then coming out again, it became global headline news (chain news: referring to The DAO’s security incident) and significantly increased the popularity of Ethereum.

9/ But the narrative of the value of capital formation began in August 2015 when the @AugurProject Initial Coin Offering (ICO) had begun, when the DAO had not yet been born. By the time the DAO was born, there were already more than a dozen tokens on the market.

10/ Is this a good thing or a bad thing? It depends on your tolerance for speculation as a driving factor in the visibility of capital markets. After The DAO, the dominant value narrative became ICO. In addition to Boca ( Polkadot ), etc. Early underlying public chain (L1) competitors as some of the bright spot, until the beginning of 2018, ICO as Ethernet value Square dominated the narrative of this trend has changed little.

11/ We also encountered the NFT mania for the first time at the end of 2017, but the challenges brought about by scale and the subsequent bear market smashed this sign.

In mid-July, 12/2018, it was obvious that the bear market was not a temporary setback. The sell-off in late November gave the last nail to the coffin of the bull market. Even the most determined people like us have to face reality.

13/ But in August 2018, just as things got serious, people with excellent memories should realize afterwards that almost every developer still under construction at that time was deploying some kind of financial contract.

14/ Therefore, the DeFi value narrative was born. From the first “DeFi Summit” during DevCon4, it has been the dominant value narrative of Ethereum until the beginning of 2021.

15/ With the full firepower of income farming, DeFi continues to grow unstoppable. The problem is basically that everyone who builds on the smart contract layer is deeply trapped in the DeFi rabbit hole. We began to ask ourselves: How will DeFi attract more than 1 million users.

16/ In hindsight, this question seems too naive. The fundamental problem is that finance mainly focuses on infrastructure. Few people in the world care deeply about market structure and payment methods. There may be tens of thousands of them.

17/ Although the ICO boom has taken advantage of almost unlimited speculative demand, DeFi revenue farming is a more challenging process. In addition, the market has matured and become more efficient, which makes it very difficult for the spirit of yolo to become anything substantial-of course, there are still many people who have done it.

18/ This means that most of the participants in the DeFi Summer are the original family of existing cryptocurrencies. There is a large inflow of funds, but mainly from large funds and giant whales, rather than end users. The price of Ethereum Gas has risen accordingly, which will only further distort this situation.

19/ But fundamentally speaking, DeFi mainly involves infrastructure. Even considering the speculative aspects of governance tokens, only a small number of people are interested.

20/ So what situation will this lead to? We fissure new financial channels, and may achieve a 100-fold increase in many aspects of the financial market. But few people care. Compared with web2, Ethereum’s user base is still very small.

21/ What followed was the second wave of NFT frenzy. NFT is the tokenization of culture. Most people don’t care about financial infrastructure. Everyone participates in culture. The target market covered by NFT is all mankind.

22/ If you need any further evidence, just look at the number of celebrities who have been addicted to NFT drugs in real time on Twitter. Yes, we saw some celebrities pouring cold water on ICOs in 2017, and some dissidents like (NBA Dallas Mavericks owner Mark Cuban) @mcuban appeared during the DeFi summer. But NFT attracts more attention than any other value narrative.

23/ Does this mean that we will see DeFi continue to remain relatively obscured, and then languish? Honestly, from the perspective of public attention, I think so. But this does not mean that DeFi will not have a greater impact.

24/NFT will absorb and connect many levels and aspects of culture. NFT will change games, sports, music, movies, art, and more. NFT means having an installed base of more than 50 million users.

25/ When was the last time we saw a transformation platform with an installed base of more than 50 million? It was 2010. The following is a data sheet for the first three years of iPhone sales.

Synthetix founder: DeFi summer is not the pinnacle, it and the magnificent future of Ethereum are in sight

Synthetix founder: DeFi summer is not the pinnacle, it and the magnificent future of Ethereum are in sight

26/ As the iPhone installation base expands, Instagram, Uber, and other apps that follow can use this new platform to grow at an alarming rate.

27/ What does this have to do with DeFi? DeFi is not really user-oriented. We mistakenly thought it was because we have been only interacting with crypto enthusiasts since 2018. However, in the future, ordinary users are more likely to use mobile wallets instead of directly interacting with DeFi infrastructure.

28/ Let us now sum up all these tweets: the intersection of NFT and culture will drive massive user growth in the next few years. But there is still an unresolved problem that has become our stumbling block: (Ethereum’s) expansion problem.

29/ The Ethereum ecosystem is expanding, but the pace of development this year has been slower than many people expected. But by the beginning of next year, we will have a number of Layer 2 (L2) projects that are ready to enter the production stage. Combined with the progress of ETH2.0, Ethereum will be able to handle more than 50 million users next year.

30/ Once all these conditions are met, we will start to see that some applications leverage the DeFi infrastructure we have built over the past few years to provide financial products with a 10 times better user experience by aggregating and improving the overall user experience.

31/ Unfortunately, no matter how much we hope, DeFi alone cannot drive user growth alone. It is too niche. But once we have millions of people get the Ethereum user experience, we will be able to convert these users to a much better financial system.

32/ Just like the rise of the Apple App Store (App Store), we cannot predict what form this will take, but when you combine a transformative technology with a large user base, there will be amazing things happen.

33/ The current encrypted user experience looks strange, but it was the same at the beginning of email (encrypted baby boomers will smile knowingly). The behavior of new users takes time to train, but these experiences will eventually change from strange to common sense. To realize the guardianship of self-rights, this concept and its power will become part of our culture in the next ten years.

34/ So much so that by now, most people have forgotten that email is strange at first. But the key is that you need something to promote this. NFT is the killer application of encryption and will promote the popularity of encryption in the foreseeable future. NFT is still in its infancy, and the design space is huge.

35/DeFi will undoubtedly become the financial track of the future. Compared with traditional finance (TradFi), its efficiency is too high, and no amount of supervision will slow its speed. Especially when there are tens of millions of users adopting new applications that utilize DeFi tracks. The Uber effect will repeat itself.

37/ Compared with what is about to happen, the transaction volume we see in the most popular DeFi protocol is also insignificant. We currently only have a small number of crypto enthusiasts participating, but DeFi will conquer the world and will only be done in stealth mode.

38/ What does this mean for DeFi tokens? I think its development path will be that there will be a small number of protocol contributors holding tokens, as well as crypto enthusiasts holding tokens, and then there will be a huge user base who only wants to use the service, and Don’t want to participate in managing them.

39/ The revenue generated by these DeFi agreements will be huge, so there will be a group of people who only want to access asset classes without needing to manage them. Staking services and other forms of passive positions will greatly expand its user base.

The 40/DeFi agreement will generate cash flows on a large scale, and its tokens will be priced mainly based on these cash flows, rather than being almost entirely based on guesses about future growth as they are now. The valuation of the dominant agreement will be many times higher than today.

41/ If you want to have a better tomorrow, hope is placed on the construction of open agreements, which will lead to a substantial increase in market efficiency. Once we have a large enough user base, the low threshold for start-ups will mean rapid progress. This will create a positive feedback loop.

42/ The final state is to create a world where most of the infrastructure runs on Ethereum. The dominant DeFi protocols will gain huge market value, but they will be realized through openness, transparency and assemblability. We will eventually achieve this magnificent scene.

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