Overview Overview
This article will start with BitMex's status in the centralized world, explaining that the oligopolistic market will also appear in the DeFi world. In the second part, the author will discuss whether the regulatory challenges encountered by BitMex will reappear in the DeFi world.
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Report report
The natural attribute of DeFi is expansion
In order to clarify the ins and outs of the point of view, we must first start with the attributes of DeFi itself.
The expansionary nature of finance
Let’s start with the macro of the entire DeFi world. Financialization brings cash and liquidity to an industry, which allows industry participants to quickly realize cash, thereby promoting the development of the overall industry. The DeFi lending platform plays the role of a bank in the traditional world and provides liquidity.
At present, there are generally pledged lending platforms on the market, and the pledge rate is between 40% and 70%. However, the market's demand for loans cannot be met by mortgage loans. In particular, DeFi is still in its infancy. The ever-increasing amount of funds is not only a solution to the marginal cost problem, but also the key to enabling DeFi to survive until ETH2.0 goes online.
Therefore, this trend has also led to non-financial project parties quickly approaching financial transactions (such as cold start through liquidity mining), and even the phenomenon that projects that should originally belong to infrastructure providers enter financial transactions. The part of financial investment is also getting higher and higher.
In the commodity trading mechanism under the macro system (such as Bitcoin, Ethereum and other digital currencies that originally belonged to commodity attributes), financial characteristics are increasingly strengthened, resulting in the final commodity price determination mechanism breaking away from the supply and demand relationship in real transactions. . To give a simple example, derivatives such as commodity futures contracts and option contracts play an important role in price discovery, but at the same time, this kind of financial transaction makes Bitcoin and Ethereum become speculative targets for similar securities, gradually losing their value as The actual value of the commodity.
From a micro-system perspective, the profit accumulation of physical enterprises (DeFi project parties) comes more from financial channels than from providing services. This is also a typical financialization phenomenon.
business expansion
In addition to industry expansion, the enterprise itself also has the attribute of expansion.
Marshall, the founder of the modern system of microeconomics, argued that almost every kind of horizontal expansion tends to increase the internal economies of mass production. When the market scale expands, concentration can bring more benefits, so the enterprise scale tends to expand. The strategic goal of enterprise expansion is driven by the enterprise's desire to maximize long-term profits. The nature of enterprises determines that any enterprise in any country must pursue expansion. Enterprise expansion is the development goal generally pursued by enterprises.
In order for this kind of drumming to spread flowers to continue, so that the expansion can be maintained, more funds need to enter this game field. After all, the leverage that lending platforms and derivatives exchanges can provide is limited. In addition to the new funds from the macro perspective, enterprises (DeFi project parties) also need to develop and expand. All of these are combined to create the expansion attribute of DeFi.
The expansion path of DeFi project party
Except for a few idealists who participate in DeFi for infrastructure construction, most pragmatists invest in DeFi projects or participate in DeFi for the sole purpose of making profits. Therefore, the author believes that the most likely expansion path is to start with transaction attributes expansion path.
To give a simple example, the figure below shows the ranking of DeFi pulse’s lockup amount. The total lockup amount of DeFi on that day was 11.09 billion, and only the top ten accounted for 93.74% of the total lockup amount.image description
Figure 1: DeFi Pulse Lockup Ranking
In terms of expansion-oriented mergers and acquisitions by DeFi project parties, a series of actions by FTX are very representative. FTX's investment landscape includes Serum (decentralized exchange), SushiSwap (AMM trading agreement), Perpetual Protocol (derivatives trading agreement), Hedget (options trading agreement), RAMP (cross-chain liquidity solution), mStable (stable currency), Paradigm (transaction communication settlement agreement), Linear Finance (synthetic asset agreement). And its main body for investment is Alameda Research. The overall investment landscape is based on the core business of the exchange, projecting the trading business into the DeFi world.
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Huobi has a similar path. Huobi also produced HBTC (stable currency), DeFi Lab (VC) and absorbed some DeFi gameplay such as liquidity mining and DeFi project tokens in the exchange business of the CeFi world to retain traffic.
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Figure 3: Ordinary user transaction path
For ordinary users, participating in DeFi still needs to purchase Ethereum through OTC, then send Ethereum to Ethereum wallets such as MetaMask, and then use the wallet to participate in the DeFi services of various platforms. But this is too expensive for ordinary users with low principal. This is also a major limitation of DeFi development before layer 2 is immature. This situation will not be alleviated after ETH 2.0 matures (TPS is still not enough), so layer 2 will exist for a long time and undertake part of the transaction settlement function.
The author believes that CeFi with traffic has already occupied the OTC channel. It only needs to have a MetaMask-like wallet connected to the CeFi system. layer2 will make the transfer fee very low and affordable, and this Ethereum wallet only needs to be an aggregator The function is to update and connect various service platforms in DeFi from time to time (as shown in Figure 3), and provide ordinary users with a convenient door to DeFi. When HBTC or other exchange-owned DeFi platforms appear, users don't mind trying when there is demand.
Such a platform must have the ability to bridge various platforms and transfer assets between various platforms. For example, enter the lending platform from the wallet, then mortgage ETH to lend DAI, pledge DAI to generate sUSD, and then use sUSD to trade derivatives. At the same time, it is also necessary to connect different trading platforms so that DeFi platforms can transfer their own assets. Therefore, after layer 2 technology matures, cross-chain asset protocols (such as COSMOS' IBC protocol) can carry at least tens of thousands of TPS. Based on the cross-chain protocol, efficient communication between DeFi platforms can be achieved, further reducing friction costs.
Therefore, the wallet, OTC channel, and cross-chain asset protocol that can handle high concurrency on the Unicom exchange platform are the only way for infrastructure, while derivatives, stable coins, liquidity providers, asset management platforms, and VC or PE funds It is the path for business to intervene in DeFi.
If things go on like this, the Matthew Effect will continue to ferment, forming an oligopoly market. But at the same time, due to the expansion of traffic channels, the scale of the DeFi market will also expand. When the scale of the market expands to a certain extent, the trees are more beautiful than the forest, and the wind will destroy them, and the arrival of supervision is inevitable.
BitMex Dilemma and Potential Regulatory Crisis
BitMex's Dilemma
BitMex was sued by the U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC). According to the allegations of the judiciary, the four defendants fulfilled KYC and anti-money laundering obligations when serving U.S. customers, and provided transactions for customers in Iran, a U.S. sanctioned country. Serve. A civil lawsuit from the U.S. Commodity Futures Commission (CFTC), alleging that BitMEX executed futures transactions while not registered, offered illegal options, failed to register as a futures commission trader, failed to register as a designated contract market, and failed to enforce proper KYC rules.
Since the U.S. official took action against BitMex, the number of BTC outflows from BitMex has exceeded 45,000, and the balance of Bitcoin on BitMex has dropped to 120,000, a decrease of 27%.
However, BitMex is a centralized exchange, KYC and AML and trading compliance business are the top priorities in the traditional world, but for DeFi, these are not the biggest problems. The dilemma BitMex faces only belongs to the centralized world, but the decentralized world also faces the threat of regulation.
Regulatory perils and opportunities
First of all, it must be admitted that only real-world assets such as gold can be marked in DeFi, and its upper limit of market assets is very high, even surpassing the digital currency market, and can reach a trillion-level market value. However, the development of the market does not happen overnight, and this process is likely to take decades. At the same time, it is impossible for a trillion-level unregulated market to emerge. Numerous cases have witnessed the correctness of this law, so the coming of regulation is inevitable.
The regulated market can attract a large amount of funds to enter the market, and before the regulation is ushered in, it is an important period of strategic opportunity for the development of DeFi. Taking history as a mirror, during the period from the 1970s to the financial crisis in 2008, financial derivatives developed rapidly. From 1999 to 2008, the development of the US capital market slowed down, and the ratio of total market value to GDP dropped from 1.72 in 1999 to 2007. 1.38, but derivatives are still growing at an average annual rate of 18%, although the subprime mortgage crisis evolved into a financial crisis. After that, contract standardization, central clearing and central information depository were successively introduced, which became the regulatory means for reforming OTC derivative transactions after the crisis.
Conclusion
risk warning:
risk warning:
Be vigilant against illegal financial activities under the banner of blockchain and new technologies. Standard Consensus resolutely resists the use of blockchain for illegal fundraising, network pyramid schemes, ICO and various variants, and dissemination of bad information.
