Latest Developments In DEFI

Although prices have been decreasing since the beginning of the year, the development in the crypto market continues. These days when the wounds of Terra's collapse are being tried to be healed, the products and services that stand out are changing rapidly.

Stable Coins

One of the major concerns that arose during the collapse of Terra was that the value of the USDT issued by Tether fell below the $1 peg. Because USDT, one of the cash-backed stable coins along with BUSD and USDC, is not transparent. Tether does not clearly and comprehensibly report the collaterals corresponding to the USDT it has released. Fortunately, Tether was able to protect its Peg during last month's perfect storm. They are now taking steps for both better transparency and a stronger collateral structure. While Tether maintains its leadership, regulated USDC and BUSD are gaining market share.

Terra's collapse has led to questioning how healthy financial instruments are algorithmic stable coins. On the other hand, stable coins such as DAI, which uses blue-chip cryptocurrencies as collateral, have renewed confidence. In this way, Maker DAO, which issues DAI, became the protocol with the highest TVL.

Liquid Staking

As part of the Ethereum 2.0 transformation, Ethereum started to provide staking rewards like other proof-of-stake networks. However, the staking in the Ethereum network needs to be continued until the date of the transformation. The LIDO protocol offers a liquid staking service for investors who want to take advantage of Ethereum staking rewards and do not want to give up their liquidity.

Investors quickly adopted the liquid staking service, and LIDO has also started offering it on the Solana and Moonriver blockchains. Currently, LIDO has become the fourth largest DEFI protocol with an asset size of $7.6 billion.

DEFI Chains

Before its collapse, Terra had a 15% share of the DEFI market. With Terra out of the equation, Ethereum's share had increased from 55% to 65%. Meanwhile, Binance Smart Chain has once again become the second largest DEFI network.

With the algorithmic stable coin it has recently released, the Tron network has reached a DEFI size of more than 6 billion dollars and has risen to third place in the DEFI chains ranking. Other notable DEFI blockchains are Avalanche, Solana, Polygon, and Fantom.

Derivatives

Derivatives are contracts that get their value from an underlying asset. The traditional derivative market is estimated to be 10 times the size of global GDP, according to Investopedia. Derivatives are one of the fastest-growing areas in the DEFI era. Currently, derivatives transactions are predominantly carried out on the Ethereum network, and a TVL of 2.5 billion dollars has been created in this area. The protocols with the largest volume are dYdX, Keep3r Network, and Synthetix. This DEFI segment, which includes leveraged transactions, can be expected to grow rapidly in the coming years.

Bridges

Fund transfers between blockchains gained importance as blockchains other than Ethereum also took a share from the DEFI market. Because the price differences between ecosystems have important income potential. On the other hand, many blockchains that want to grow their share in the DEFI space offer attractive investment alternatives to investors. Bridges were primarily built between Ethereum and other blockchains. Later, bridges began to be built between blockchains other than Ethereum. Fund transfer between blockchains is mainly provided through stable coins such as USDC and USDT. Currently, the most used bridge application is MultiChain. On the other hand, fund transfers between blockchains created on networks such as Cosmos and Polkadot can be carried out faster and at a low cost. In the Cosmos ecosystem, Inter Blockchain Communication (IBC) infrastructure is used for this purpose.

DEXES

Automatic market makers (AMM) used in DEXs work with the famous x*y=k formula. In this formula, x and y represent two coins in a liquidity pool, and k represents a fixed number. In transactions made through this formula, the price change accelerates as we move away from the center of the curve. Such a formula does not produce optimal results for stable coins, whose price values ​​are predicted to approach 1 every time. For this reason, a different formulation was developed to be used between stable coins under the Curve protocol. The formulation in question ensures that the middle parts are flat in the hyperbola formed by different price balance levels.

Mainly used for trades between stable coins, Curve is still the DEX with the largest TVL. It is followed by Uniswap, Pancakeswap, and Sushiswap. The success of Sushiswap, a Uniswap clone, lies in the fact that it serves on 15 separate networks. The same is true for Curve.

The variety of commission rates in DEXs draws my attention lately. Last year, there was a commission rate of 0.3% for almost all of the pools. There are now liquidity pools with a 1% commission rate for highly volatile coins. Competitive rates of 0.05% are applied for pools with frequent transactions.

Yield Farming

In the first half of 2021, applications that automatically compound liquidity pool returns were popular.

Nowadays, different strategies such as protocol-owned liquidity, leveraged liquidity pool mining, and automated liquidity management have been developed for yield farming.

Protocol-owned liquidity has become a concept that we are familiar with thanks to the Polycub application by @leofinance. It refers to the protocol's revenue generation according to various predetermined strategies. The revenue generated by the protocol contributes to profitability and sustainability.

Alpaca finance, which is one of the main yield farming applications, provides automatic leverage to the investments made in liquidity pools. Thus, investors can get 2 to 3 times more returns with the same liquidity. In return for this opportunity, they assume an extra price risk.

Arrakis Finance, which is still in beta, automates liquidity management strategies to be implemented on top of Uniswap V3. Although it is a new application, it is in second place in terms of LTV in the yield farming niche.

Conclusion

Competition between blockchains and protocols continues at full speed in DEFI, a highly dynamic field. In addition to what I mentioned above, many innovative DEFI mechanisms are being implemented within the scope of play-to-earn games.

It is always possible to make DEFI investments with high return-risk ratios both in the Hive ecosystem and other networks. We all know that no bear market lasts forever.

Thank you for reading.

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Posted Using LeoFinance ^Beta