In December 2022, 0xPlasma Labs initiated a proposal in the Uniswap community, suggesting that Uniswap V3 be deployed on BNB Chain. Currently, the Uniswap DAO has completed the final vote and passed. According to the Tally voting page, the vote ended last Friday, and 66% of DAO representatives supported the move. Representatives with major voting rights, including Ethereum software company ConsenSys and Compound Finance founder Robert Leshner, voted in favor of the proposal. At the same time, venture capital giant AndreessenHorowitz voted against the proposal with 15 million votes. Although DeFi Summer is a thing of the past, this move is of great significance to both the Uniswap community and the BNB Chain community.
DeFi was tepid in the early days until the emergence of automated market makers and liquidity mining in 2020, when it began to grow explosively and dominated the last bull market cycle. Entering 2022, with the macroeconomic downturn, frequent black swan events, DeFi chain vulnerabilities and hacker attacks, and the overall crypto market downturn, the DeFi bubble burst one after another, and the entire DeFi field suffered a huge blow and began to enter a trough period. Leading projects such as Uniswap were not spared. Although they experienced a decline in TVL and a cliff-like drop in trading volume, Uniswap's leading position is still unshakable.
The current state of DeFi
DeFi has entered its golden age since 2020, attracting a large number of institutional and retail investors to invest in DeFi protocols. At the end of 2021, DeFi's TVL (total value locked) reached an all-time high of $182.16 billion. After the baptism of the bear market, a large amount of funds in the#DeFiprotocol were withdrawn, and the market value shrank massively. At present, DeFi's TVL is only $46.87 billion, a 75% drop from its all-time high.
DeFi market value and market share in 2021 (coingecko)
DeFi market value and market share in 2022 (coingecko)
It is not difficult to see from the above data that the explosive growth of DeFi was mainly in 2021, and 2022 can be said to be a screening and clearing of inferior DeFi projects in the market, as well as a process of bursting the bubble. After two years of iteration, decentralized exchanges, oracles, lending, and derivatives in DeFi are still the mainstream applications of DeFi, and the proportion has not changed much in 2021 and 2022. DEX and lending are still the main sub-tracks of DeFi, and the market value of the two accounts for 66.8% of the entire DeFi.
DeFi market capitalization share data in Q4 2021 (coingecko)
DeFi market capitalization share data in Q4 2022 (coingecko)
As the leading DeFi projects are more secure and stable, with lower transaction friction, the leading position of these leading protocols has been gradually consolidated and strengthened in this process, such as Uniswap and AAVE on the Ethereum chain, and PancakeSwap on the BNB Chain.
DeFi remains important to the entire crypto market
As new hot spots continue to emerge in the market, many investors may be more inclined to focus on new concepts and ignore DeFi. In fact, this is not a wise choice. DeFi still has many opportunities in the future, mainly manifested in three factors:
1. New concepts generally require a long process of infrastructure construction, trial and error, and iteration, which are relatively risky. As the DeFi market matures, it is more stable, can take on more funds, and contains more low-risk opportunities.
High-risk preference funds prefer emerging fields, but such funds are more speculative and have a higher probability of investment failure. For larger-scale funds, choosing stable and long-term promising sectors and projects is the top priority. It is impossible to invest all 10 billion funds in a sector with a valuation of 100 million. Therefore, most funds will still choose more mature sectors for layout. DeFi is still a cost-effective option. Following the pace of smart money is also the best investment strategy for ordinary users.
2. The basic attributes of DeFi determine its important role in the future market and the decentralization process.
With the update and iteration of blockchain technology, DeFi has become the cornerstone of the new generation of financial system. The core of DeFi is trading and lending, which have existed in human history for thousands of years. The essence of modern business society is also trading and lending. Whether you are dealing with banks, real estate or any other industry, or starting your own business, you can't avoid trading and lending. Similarly, as blockchain and encrypted assets with decentralization as the core, due to their strong financial attributes, they are naturally inseparable from the blessing of the DeFi market.
Before the emergence of DeFi, centralized exchanges in the crypto world were essentially providing trading services to users, and the emergence of DeFi is a further upgrade of trading services. Judging from this perspective, the blockchain financial market has actually started from the birth of the first crypto exchange, and DeFi makes this market safer, more convenient, and easier to use.
3. Although the DeFi bubble has gradually burst in this bear market and the entire track is experiencing a downturn, some changes are quietly taking place.
DEX began to integrate NFT transactions. Uniswap announced the integration of NFT trading platform Sudaswap at the end of July. PancakeSwap also developed and integrated the NFT trading market on its own platform, increasing the protocol revenue by up to about 40%.
Some DEXs have begun to integrate more functions. In addition to Swap and liquidity mining, some DEXs have begun to integrate Staking, lending, cross-chain, and financial derivatives to provide users with one-stop services, improve user stickiness and protocol revenue. PancakeSwap has also derived a traditional limit order model in the protocol to improve user experience.
Although we are experiencing a bear market, the DeFi track is still full of imagination. Existing projects are constantly iterating and optimizing, and there is still an unexplored financial derivatives track. These expectations are enough to make DeFi still have potential that cannot be underestimated in the upcoming bull market.
BNB Chain becomes a battleground for DeFi
The DeFi ecosystem on BNB Chain is relatively complete. In addition to trading, lending, and derivatives, staking, aggregated returns, stablecoins, etc. are all prosperous enough. So, will the arrival of Uniswap squeeze the space of BNB Chain's native DeFi projects, and can it occupy a place on BNB Chain?
Currently, Ethereum’s total value locked accounts for 72.74% of the total, while BNB Chain’s is only 8.99%.
However, in terms of daily transaction volume and daily active users, taking the data on February 9 as an example, Ethereum had 1,043,644 transactions and 329,498 active users, while BNB Chain had 3,276,391 transactions and 903,648 active users. Both BNB Chain’s transaction volume and active users are nearly three times that of Ethereum.
BNB Chain is compatible with Ethereum Virtual Machine (EVM), and developers can easily deploy smart contracts and build Dapps on BNB Chain. Users can use BNB Chain in a familiar way, while enjoying faster confirmation speed and lower Gas Fee. In fact, BNB Chain still has huge potential waiting to be explored.
At the same time, BNB Chain is a public chain with a relatively high degree of balanced ecological development. In addition to DeFi, NFT, GameFi, Metaverse, Web3 projects, privacy, social, fan economy, stablecoins, decentralized identity and other directions are developing in a balanced manner. This is also the unique advantage of BNB Chain. The limitations of a monotonous or single public chain ecology are actually very large, and a public chain ecology with balanced development is more advantageous.
Similarly, in the future bull market, the above-mentioned projects are likely to usher in rapid growth, and their tokens may also have many opportunities to participate. Obviously, this market will be huge in the future. After the project explodes, the market will have huge trading and lending needs. As one of the foundations, DeFi naturally needs to provide many functions such as trading and lending for these projects. The growth space of DeFi projects is very broad. Uniswap will also play an important role in BNB Chain.
DeFi is still a potential track for the next bull market
The upper-layer applications and the lower-layer basic applications complement each other, especially in the era of the widespread use of EVM-compatible public chains. The improvement of development tools makes it not very difficult to deploy projects on new public chains. BNB Chain will naturally become one of the most attractive public chains and will also attract many DeFi projects.
The public chain needs DeFi to realize basic financial functions, and DeFi also needs the user financial service needs brought about by the prosperity of the public chain ecosystem. The two are essentially interdependent. At this point, BNB Chain currently has obvious advantages, and this also provides the possibility for the further prosperity of the#BNBChain ecosystem.
