As a once important growth flywheel of the crypto market, DeFi seems to have been silent in the past two years.
Although new exchanges emerging on Ethereum Layer2 are vigorously attracting liquidity, and old DeFi protocols MakerDAO and Unichain are also making some adjustments. However, these "innovations" are mostly biased towards business transformation/adjustment, and are not mixed with technology and model innovation.
As a Web3 super portal that receives traffic, the OKX Web3 wallet focuses more on how to improve user experience and help users play in the on-chain world with a low threshold. Therefore, this article aims to explore the DeFi form and its next development in the eyes of the OKX Web3 product manager.
DeFi market overall situation and user portrait
The popularity of the DeFi track has declined in 2024, especially after the LSD and Pendle craze in the first half of the year, the market has gradually calmed down and lacks new narrative drivers. However, from the beginning of the year to date, the LSD and LRT tracks have maintained strong growth, especially the re-staking projects represented by EigenLayer, which has driven the LRT track to bring nearly $20 billion in incremental growth to DeFi. At the same time, the yield market led by Pendle has also performed well, with its market value increasing nearly fourfold since the beginning of the year, with Pendle contributing most of the increase.
In addition, the total locked value (TVL) of the RWA track has doubled since the beginning of the year, with private lending, treasury tokenization, and the entry of traditional financial institutions as the main driving forces. BTCFi was driven by the inscription narrative, and developers are committed to activating BTC funds and users by implementing smart contract-like functions on the BTC mainnet, further building the DeFi ecosystem, and bringing a new wave of growth.
The total locked-in amount in the current DeFi market has climbed from $50 billion at the beginning of the year to $120 billion, and has now fallen back to about $80 billion. The LSD track still occupies the largest market share, followed by lending and DEX.
At the beginning of this year, the total locked value (TVL) of the DeFi market was US$50 billion, then climbed to a maximum of US$120 billion, and has now fallen back to about US$80 billion. The LSD track occupies the largest market share, followed by lending and DEX.
At the user level, current DeFi users are mainly divided into the following categories:
1. Crypto native ordinary users : Their main demand is more on-chain interest-earning channels, such as earning income through stablecoins; while advanced users pursue more complex DeFi strategies and build nesting dolls to obtain higher returns.
2. Institutions such as on-chain DAOs : These users focus on treasury management and stable returns, and prefer low-risk basic DeFi protocols, especially RWA and other interest-earning channels that introduce off-chain assets (such as US Treasuries) into the chain.
3. Traditional financial institutions : They gradually realize the efficiency and composability advantages of DeFi, and begin to look for more distribution channels by on-chain traditional assets.
4. Users who are not familiar with DeFi : Although these users are interested in higher-yield opportunities on the chain, the threshold for entering DeFi is high and they need guidance from a guide.
Users who are suitable for participating in DeFi usually have a certain risk tolerance and strong learning ability, especially those who have a certain understanding of the on-chain ecology and crypto assets and are eager to explore in depth are active in DeFi.
DeFi risks and common sources of income
The main risks currently facing the DeFi field include the following:
1. Security of the underlying smart contract of the protocol : This is the biggest risk in DeFi. Smart contract vulnerabilities may lead to attacks on the protocol and theft of funds.
2. Project party reputation risk : The project party may run away (rug pull) and other situations, affecting the security of user funds.
3. Regulatory risks : As DeFi scales up, the attention of governments and regulators around the world increases, and it may face stricter regulatory requirements in the future, involving compliance issues such as KYC and AML.
4. Liquidity risk : DeFi protocols rely on liquidity providers, and any sudden withdrawal of liquidity (such as whale behavior) may cause market imbalances, increase transaction costs, or trigger liquidations.
5. Market risk : Many DeFi platforms rely on other mainstream cryptocurrencies, such as Ethereum, for their functionality. The prices of these assets may be highly volatile, causing losses to users, and in serious cases, may have a significant impact on the DeFi ecosystem. In addition, DeFi popularity often changes rapidly, and users need to keep up with the hot spots and adjust their positions in real time, otherwise they may miss out on high-yield opportunities.
As for common sources of income and common risks, DeFi has multiple underlying sources of income, such as providing liquidity as an LP in Dex to earn transaction fees; providing loanable assets in lending agreements to earn loan interest; the income of Staking, LSD and LRT comes from staking rewards, such as Ethereum PoS income, as well as project tokens and points; for Perp perpetual contract LP (such as GLP, JLP), the income comes from the transaction fees or funding rates of the counterparty; finally, RWA (real world assets) income comes from off-chain traditional assets, such as returns on US Treasury bonds or real estate. In addition, many DeFi project parties will also give liquidity providers additional project token rewards and token rewards to partners.
In general, the higher the risk, the higher the return. Basic lending protocols and staking are relatively safe, but the yield is low; more complex operations such as LP in DEX V3 require real-time dynamic adjustment of the market-making range. Although the return is higher, the risk is also increased accordingly. Therefore, when trading, you should pay attention to choosing the target that matches your risk tolerance.
At present, OKX Web3 has taken certain measures in terms of security. We believe that the security of DeFi projects is the key to their large-scale popularization. OKX DeFi will conduct a full investigation before accessing a new protocol. The BD team is responsible for evaluating the background of the project party, and the technical team is responsible for in-depth review of the smart contract to ensure that there are audit reports and other guarantees. As a DeFi aggregator, the OKX DeFi platform only accesses protocols that have been verified for security, and the platform will not host user funds. It only serves as a bridge for users to participate in DeFi with one click. In addition, OKX DeFi also provides users with an additional layer of income, which comes from subsidies from the project party and will not be distributed directly to users through the OKX platform, further reducing financial risks.
OKX DeFi product status and development direction
At present, RWA (real world assets) may become a potential growth point for DeFi. As traditional assets such as real estate, bonds, and stocks are gradually introduced to the chain, higher liquidity and returns can be achieved through the DeFi protocol. In 2024, more institutions will pay attention to the combination of RWA and DeFi, which will bring more funds and opportunities to the DeFi ecosystem. At the same time, institutional investors' interest in DeFi continues to increase, especially in areas such as stablecoin lending and income-generating products, prompting more traditional financial institutions to explore ways to participate in the DeFi market. The involvement of institutions will promote the DeFi market to be more mature and standardized, and bring more capital inflows and more stable income products.
In addition, CeDeFi brings innovative products by combining CeFi and DeFi, such as Ethena, a solution that combines yield-generating stablecoins; while the BTCFi field has seen the emergence of innovative BTC-based Staking protocols and their derived upstream LSD ecosystems, such as Babylon.
OKX's DeFi products are mainly focused on building a one-stop DeFi aggregator. Users can participate in various DeFi protocols on the entire network through the OKX platform, making position management more convenient. OKX not only helps users filter the risks of most protocols, but also does not host user funds. It also provides users with an additional income layer outside the DeFi protocol official website to increase transaction returns. In addition, OKX is also designing exclusive DeFi strategy products, aiming to help users obtain higher returns through the team's professional capabilities.
OKX's DeFi development plans in the future include: creating the best one-stop DeFi revenue aggregator in the entire network, aggregating the DeFi protocols of all mainstream public chains, and supporting emerging hot projects to provide more early revenue opportunities; launching a powerful DeFi dashboard to display the positions and PnL of the entire network; and through the strategies of professional teams, productizing complex DeFi strategies, simplifying the trading process, and facilitating more users to participate in the world of DeFi.
Disclaimer
This article is for reference only. This article only represents the author's views and does not represent the position of OKX. This article is not intended to provide (i) investment advice or investment recommendations; (ii) an offer or solicitation to buy, sell or hold digital assets; (iii) financial, accounting, legal or tax advice. We do not guarantee the accuracy, completeness or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/investment professionals for your specific situation. Please be responsible for understanding and complying with local applicable laws and regulations.
