DeFi Newsletter: Will the Glory Days Return to DeFi?

DeFi Decryption is the Decrypt email newsletter from Decrypt. (Art: Grant Kempster)

It’s been a pretty boring bear market lately. bitcoin Flirt with $30,000 for a while, and raised I was only briefly able to pass the annoying $2,000 mark.

It looks like the same thing in DeFi. Derivative changes cause various projects to temporarily switch TVL for a while; A week later, the same money flows into the first project.

Even Uniswap, one of the leading projects in this space, has barely registered a slight increase after launching in its latest iteration.

So what’s next for decentralized finance? The glory days of the sector are clearly over, but does that mean that DeFi has no future?

Let’s start by dumping the data. According to DeFi Llama, there is still approximately $45 billion circulating in various projects. This is a long way from the $178 billion cap set in November 2021, but there are also a few projects (The most important Land).

All money in DeFi today. Photo: DeFi Flame.

These days, that value is mostly concentrated in the freezing of a liquid. Two of the ten largest projects fall into this category: Lido Finance ($14.5 billion) and, ironically, Coinbase-staking Ethereum ($2.27 billion).

Both gained popularity after the successful implementation of Ethereum’s transition to a Proof-of-Stake consensus network, which gave rise to the popular term “true throughput”.

Instead of cheating games between different DeFi projects (like Terra), the payout generated by staking ETH is about as legitimate as it can be, at least for cryptocurrency.

There are real users trading currencies or buying and selling NFTs, and developers seem to be publishing smart contracts on the network every day. Those who participate in the ETH or their stake are doing a real service in keeping these transactions secure and are therefore being rewarded.

This is one potential futures contract: DeFi products built on and around a higher real rate of return. In another issue of Decrypting DeFi, we look at a more sophisticated project called Eigenlayer which is also capitalizing on this trend.

There’s also talk of different institutional players looking to build more products to get another 1% or 2% of that actual return. This is a trend that people should definitely follow closely.

Another future is how another type of return, real world assets, will support projects like MakerDAO and specifically the native DAI stablecoin.

What was once a paltry 1%, the DAI savings rate (DSR) has risen to nearly 4% for contract holders who decide to deposit or participate in the dollar-pegged stablecoin in the contract.

The reason the protocol is able to deliver this increase is due in part to the revenue it generates from the various traditional agreements that the community has voted to implement.

For example, last JuneThe Maker community has voted to buy BlackRock’s short-term US Treasury notes and bonds for $500 million. The return generated by this transaction and others like it is now redistributed to DAI holders.

These two futures contracts may not be as attractive as double-digit yield farms, but they’re still in the future.

As directors used to say in the summer of 2020: It’s not much, but it’s honest work.

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