A quick look at recent popular DeFi narratives and innovative projects

Author: Crypto Ann; Compiler: Bai Ze Research Institute

If you're not a cryptocurrency "full-timer", following the various subfields of cryptocurrency/DeFi on a day-to-day basis can be quite challenging. That's why I thought it would be a good idea to hype up the "narratives" (and the interesting protocols associated with them) of all crypto subfields.

Real World Assets (RWA)

While Bitcoin is trying to break into TradFi via ETFs, TradFi assets like bonds have infiltrated the DeFi world.

Enthusiasts believe that RWA is a way to bring more institutional money to DeFi. We’ve seen a lot of talk about RWA recently, and market interest has translated into outperformance for RWA-related tokens like MakerDAO.

In addition to existing players such as MakerDAO, Synthetix, and Tether, a new RWA protocol called Ondo Finance has recently attracted attention. Ondo Finance aims to provide access to various TradFi assets such as US money markets and on-chain US Treasury bills. This is an extremely convenient way for non-US investors who do not have access to the US market.

Some RWA protocols in the past have attempted to bring TradAssets on-chain, a concept similar to Ondo, but things never quite worked out. The biggest hurdle is credibility. After all, RWA is semi-custodial, because the protocol will act as a "bank" responsible for hosting your real-world assets (bonds, stocks). And Ondo stands out with the reach and experience of TradFi asset manager BlackRock.

**RWA at risk? **

I have my own doubts about the concept of RWA. It’s not so much the DeFi/crypto concept as much as the asset itself. Take U.S. Treasury bills, for example. With recent credit rating downgrades and a looming debt crisis caused by unsustainable debt interest payments, RWAs present yet another risk — and a significant one — to the DeFi space.

Tether and DAI have faced criticism for their heavy reliance on U.S. Treasury bills. If their claims are true, Tether could become the world's largest holder of U.S. Treasury bills. Given that USDT is one of the most well-known crypto stablecoins, forming trading pairs with almost all tokens, any possible default by the US government has the potential to trigger the decoupling of USDT and potentially disrupt the entire cryptocurrency market and ecosystem.

At the very least, RWAs aren't just US T-bills, which is what some RWA agreements are currently focusing on. Ondo Finance's USDY product represents short-term U.S. Treasuries and bank demand deposits, rather than long-dated U.S. Treasuries that led to the collapse of a Silicon Valley bank earlier this year. I think this is a better approach in uncertain market conditions. Even Warren Buffett only buys short-term U.S. Treasuries.

fixed income

Recently, there has been a growing preference for a fixed ROI when it comes to DeFi liquidity mining.

A guaranteed rate of return is reassuring in times of market uncertainty. Take Ethereum’s staking yield as an example, which has been known to fluctuate. Returns during a bull market can be different than during a bear market, and it can be difficult to predict or quantify exactly how much money you will make.

The concept of fixed income is very simple. When investing, you typically earn a stream of returns over a period of time.

Pendle and Spectra

Pendle is one of the protocols with the fastest growing TVL this year. They offer fixed yields on a variety of collateral assets including Lido's stETH, RocketPool's rETH, and GMX's GLP. There are even stablecoins.

Every pool on Pendle has an expiration date, which is the date when the pool of funds stops earning yield.

Spectra is a newcomer to the fixed income narrative. It works very similar to Pendle, although so far you can only stake Lido's stETH and USDC on this protocol.

Fixed Loan

In addition to pledged assets, another area where DeFi investors have a greater demand for fixed income is the lending market. Just like in the real world, despite changes in interest rate policy, you still earn interest for the duration of the borrowing - another excellent hedge against market uncertainty.

In the DeFi mortgage lending agreement, when the mortgage deposit value exceeds the loan value, the lending agreement works well, allowing borrowers to obtain liquidity without having to sell their assets deposited into the agreement. However, when the value of mortgage deposits falls, or the value of loans rises, borrowers have an incentive to avoid repayments, potentially leaving both depositors and borrowers in trouble.

So there is liquidation, which is an operation triggered when your mortgage assets are not enough to cover your loan. Liquidation will cause the mortgage assets of the deposit to be bought by others, and you may need to pay a certain penalty.

Most recently, the Curve founder was nearly liquidated in the Curve hack as his loan interest rates soared to 70%-88%. This liquidation mechanism is necessary in mortgage lending agreements. As market conditions deteriorate, borrowers will be forced to repay their loans.

Term Finance

I recently stumbled upon an interesting protocol. Term Finance lets you borrow money at a fixed rate for a set period of time. (eg 4% for 4 weeks). The interest rate is determined through an auction. The borrower sets an offer price, and the lender sets an offer price. The figure after this "haggling" on bids becomes the final rate. An auction starts/ends every Thursday.

veToken

The veToken narrative has existed in DeFi for a long time, probably because it is one of the results of continuous experimentation by DeFi developers. More importantly, in a bear market like this, veTokens are one of the best strategies to accumulate assets for the bull market and earn income from it.

At present, most of the veToken protocols are those blue-chip DeFi projects that have survived the bear market, such as Curve's CRV, Balancer's BAL, Frax's FXS, etc.

However, I'm not interested in these veToken native protocols, but the protocols built on top of them.

Because unless you are a "whale", the veToken mechanism is not that profitable. From yields to voting rights, these aspects often appear less impressive to individuals with smaller positions.

So, what is the solution? You can mortgage your veToken through agreements such as StakeDAO.

StakeDAO

In the veToken narrative, stakeDAO is at the top. The goal of the protocol is to serve as the final destination for your veTokens.

In StakeDAO, you have the opportunity to combine your assets with other people's assets to increase returns and gain additional benefits from a larger pool of funds, such as increased voting power.

StakeDAO supports a variety of veTokens, and the APR often hovers in the 2-digit range. For example, the current annual interest rate for staking veCRV through StakeDAO is 38%. Another thing I find attractive about this protocol is that they are constantly adding more pools from new veToken players. Recent additions include Pendle's vePendle and new NFT platform BlackPool's veBPT.

LSDFi

The DeFi community is constantly working on maximizing the use of staked ETH.

For example, EigenLayer proposed the concept of "re-pledging", which allows you to pledge ETH twice to protect other protocols (eg, data availability chain).

Recently a new project in LSDFi has caught my interest, Prisma Finance, and even though it is currently only in the pre-launch stage, the project is interesting enough to raise the question: Is it possible for Prisma Finance to be the final protocol for LSD, something like To convert DAO to veTokens?

As the project's official website is not online, their plans can only be learned through their blog. Highlights:

• Users will be able to mint stablecoins purely backed by LSD tokens. Therefore, the underlying asset poses no additional risk other than ETH itself.
• veToken mechanism. (Will stakeDAO also support the project?)
• Various LSTs from Lido, Frax, RocketPool, etc.

Conclusion

In addition to the above-mentioned DeFi narratives, there are many popular narratives in the broad encryption industry at present.

Projects such as "AI + Crypto", Giza Tech and others are trying to turn machine learning models into smart contracts. But projects in this narrative usually consist of tools, so it's not really worth the investment.

You may have also noticed that I didn't cover the recent trending but "unpopular" narratives. Not only are these narratives susceptible to rumours, they do not support sound investing beyond hype. For example, the one-way bridge of the Base chain and the unverifiable DEX (LeetSwap) that led to hackers exploiting the vulnerability, and people desperately sending cryptocurrency to wallets created by bots (Telegram Bot).

risk warning:

The above items and opinions should not constitute investment advice, DYOR. According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.