Current state of DeFi

Gísli Kristjánsson

September 6, 2020

The main idea is to extend the use-cases of public blockchains to not only offer cryptocurrency as a form of money but to encompass more complex financial transactions

Use cases

Stable coins
Spot and derivates trading
Credit facilities and money markets
Insurance
Prediction markets
Staking

DeFi is still highly experimental and there are huge risks associated with various platforms, people will lose money and there will be crying 😭

However, it might also bring real innovation, just like not all the ICO projects turned out to be scams ☠️

Liquidity mining ⛏

The central idea is that you earn yield by providing liquidity to other participants

Early protocols used order books but automatic market makers are winning

Dharma vs Compound
0x vs Uniswap

Liquidity is provided by locking tokens in a pool 🎱

token_A * token_B = K

$$ y = \frac{k}{x} \implies \Delta P = \frac{dy}{dx} = - \frac{k}{x^2} $$

Arbitrageurs are incentivized to keep the the pool balanced

LPs receive liquidity tokens

Optionally LPs receive a governance token

The main metric to watch is the Total Value Locked

2020	TVL $MM
Jan	690
Feb	1,000
July	2,000
Sept	9,000+

Building blocks 🧱

Pegged tokens


wBTC	BTCB
tBTC	renBTC

Oracles

Chainlink

Protocols 🧬

MakerDAO

DAI

$DAI is decentralized stable coin with an associated governance token $MKR

DAI

$DAI is a debt which is minted when a supported token is locked in a CDP

The collateral is released when the debt is paid back

Debtors must maintain a 150% margin

Synthetix

Synthetix is a generalized version of $DAI

Synths can track any asset

LPs receive the $SNX governance token

Ampleforth

$AMPL is a digital currency that adjusts supply daily based on market conditions

Uniswap

Exchange AMM where pools contain 50/50 split of tokens in a pair

Pools can source liquidity from other pools

V1 not upgradable but V2 has admin key for fees

Native price oracles but initial versions attackable

Uniswap

Balancer

Generalized version of Uniswap

Pools contain up to 8 tokens with any distribution

LPs receive $BAL token

Mooniswap

Exchange AMM protocol by 1inch

Shares slippage fees with LPs

Curve

Specialized exchange for stablecoins

The sBTC, WBTC, renBTC, BTCB are “stablecoins” amongst themselves

Beats most CEXes on liquidity

Liquidity is supplied to Compound, Synthetix or yEarn where it generates more income for LPs

1inch

DEX aggregator

Best rates by splitting orders among multiple DEXes

Compound

Compound is a money market AMM

LPs get the $COMP governance token

AAVE

Compound is a Similar to compound

Pioneered flash loans

dydx

Derivaties exchange and margin trading

yEarn

DeFi yield aggregator

The most current optimal strategy to maximize returns

Roboadvisor

Profit switching lender to optimize lending yields

yearn

The yearn.finance ecosystem is controlled by the $YFI token

$YFI a completely valueless 0 supply token. We reiterate, it has 0 financial value

$YFI rallying by more than 4,000% within days of release.

Yield farming 👨‍🌾

the degens are just yolo-ing in!

The names are more meme 🚀

Rube Goldberg machine for money 🤯

Mostly unaudited code 😱

Often anonymous teams 🤡

The power of composability 🧩

YAM

A stablizing reserve currency protocol (see Ampleforth)

Fair distribution

$YAM uses yCRV as the reserve currency, which is roughly a $1 peg

$500MM TVL in 24h

Smart contract bug caused hyperinflation (off by 10¹⁸) within 48h

YAM

SushiSwap

Promoted itself as an “evolution” of Uniswap

$700MM TVL in 72h and then $1.1B

Chef Nomi exits with $13MM of Sushi’s development fund

Sold half of the $27MM dev fund that he said he wouldn’t touch without community approval

Ironically uses Uniswap to convert $SUSHI to $ETH

SushiSwap

Kimchi

Cream

Based on Compound

Deployed to Binance Smart Chain

yETH

Latest vault from yEarn

$14MM TVL in 48 hours

Uses MakerDAO’s OSM to delay liquidation by 1 hour

Staking 🥩

Proof of stake is a type of consensus algorithm

Next block is chosen via combinations of random selection and stake

Nothing at stake problem solved with slashing

Security relies on staking rewards

1/3^rd of stake needed to attack the network 🦖

Attacker could offer stakers more attractive yield than the PoS protocol

DeFi lending markets directly compete with staking