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2024 DeFi Six Major Trends: Protocol Platformization, LST Rise, Perp DEX Innovation
Outlook for the DeFi Sector in 2024: Key Trends and Development Directions
In recent years, Decentralized Finance ( DeFi ) has experienced rapid development. From its initial experimental projects, DeFi has become an indispensable infrastructure in the cryptocurrency ecosystem. Although some well-known projects have emerged during this process, competition in the field has also intensified. Various projects continuously launch new products and reduce fees to attract users. So what trends might DeFi present in 2024? Here are some predictions and analyses of key trends in the DeFi space.
The trend of platformization of agreements is obvious
With the maturity of DeFi, major protocols are beginning to move beyond single functions and instead offer comprehensive services. Last year, several well-known DeFi projects launched new business lines:
MakerDAO's SubDAO Spark has launched, with a total locked value of (TVL) on Ethereum reaching 1.65 billion USD, making it one of the major lending protocols.
Curve and Aave have developed their own stablecoins, crvUSD and GHO, respectively.
Uniswap has launched its own wallet application and previously acquired an NFT trading platform.
The Thala on the new public chain Aptos has developed multiple functions such as stablecoins, exchanges, Launchpad, and liquidity staking, covering almost all commonly used Decentralized Finance services except for lending.
This platformization trend is expected to continue to strengthen in the future, reflecting the increasing maturity of the Decentralized Finance industry.
The Dominant Position of Top Projects Is Hard to Shake
Leading DeFi protocols such as Uniswap, Aave, and MakerDAO were all born before the last bull market. They have continuously strengthened their positions in the ongoing evolution of the market, showcasing strong network effects and brand influence. These projects are also continuously updating and iterating:
Uniswap announced version v4, allowing for various custom features to be added through "hooks".
Uniswap X has proposed a new solution for off-chain order signing and on-chain Dutch auction settlement.
Aave v3 improves capital efficiency and expands across multiple public chains.
Data shows that Uniswap's DEX market share on major EVM-compatible chains remains around 55%. In the short term, the dominance of these leading projects is difficult to shake.
The decline of liquidity mining, funds seek higher efficiency
In mature public chain ecosystems like Ethereum, Solana, and BNB Chain, liquidity mining has gradually become a thing of the past. Projects rely more on "real yields" to attract funds, while capital tends to flow towards platforms with higher efficiency.
Taking Solana as an example, the DEX on it demonstrates strong capital efficiency. As of December 30, the liquidity highest SOL/USDC and SOL/USDT pools on Orca have daily average earnings from transaction fees close to or exceeding 0.5%. In contrast, the top three trading pairs of ETH/stablecoins on Ethereum have daily average earnings only ranging from 0.068% to 0.127%.
In a situation where there is such a large gap in profitability, professional liquidity providers may be more inclined to turn to more efficient emerging platforms. However, this does not mean that leading projects will be replaced; they still have better fundamentals, security, and stability advantages.
LST May Become a New Public Chain TVL Growth Engine
Despite the long-standing concept of liquid staking tokens (LST), it only began to gain widespread attention before the Ethereum Shanghai upgrade. Currently, Lido, the leader in LST, has become the DeFi project with the highest TVL.
This trend is also seen on other public chains. In the Solana ecosystem, two LST projects, Marinade and Jito, occupy the top two positions in TVL rankings. They promote the use of LST in Solana DeFi protocols through incentive measures, thereby driving the growth of the entire ecosystem's TVL.
Other public chains have also begun to imitate this model. For example, in the Sui ecosystem, some LST trading pairs have an annualized yield as high as 49%, most of which comes from official rewards. The leading lending platform on Avalanche, Benqi, has also developed LST services, and the TVL brought by LST has now surpassed its lending business.
Perp DEX is expected to give birth to more competitive projects
Decentralized perpetual contract exchange ( Perp DEX ) was once highly regarded and gave rise to well-known projects such as dYdX, Synthetix, and GMX. However, mainstream Perp DEX still faces some issues:
GMX v1 is unbalanced in long and short ratios during one-sided markets, which is not friendly to liquidity providers. At the same time, the trading costs are relatively high, which is also not friendly to traders.
GMX v2 introduces a trading slippage mechanism, but this brings uncertainty to users.
The funding rate of Synthetix is highly volatile, and there is an 8-second delay in order placement.
Recently, some new projects have showcased appealing features. For instance, Drift's DLP pool offers high-yield liquidity mining opportunities, although with higher risks. Projects like Aark Digital and MYX Finance have proposed more efficient capital solutions. These innovations could drive the emergence of more competitive projects in the Perp DEX space.
Real World Assets ( RWA ) Outlook in Doubt
RWA projects are somewhat controversial. They often rely on centralized entities and may face regulatory risks, which do not fully align with the decentralized philosophy of Decentralized Finance.
At present, it seems that U.S. Treasury bonds are the only RWA direction that can be widely applied. Other assets such as real estate and artworks can be tokenized, but due to their non-standardized nature, they still lack liquidity on the chain.
As the United States may begin to lower interest rates, short-term U.S. Treasury yields are expected to decline in 2024, which will directly affect the returns of RWA products such as MakerDAO. At the same time, if the crypto market enters a bull market, the demand for stablecoins may increase, potentially reducing the attractiveness of RWA products. Recent data from MakerDAO shows that the issuance of DAI has begun to decline since late October.
Nevertheless, entrepreneurs are actively exploring the RWA track. In this process, traditional financial institutions may be introduced as partners, bringing new development opportunities and narratives to RWA.