Article Rewrite:
I. Project Segmentation: Financial Faction vs. Web2 Integration Faction
After the approval of ETH ETF, the entire market experienced a significant decline, just like what happened after the approval of BTC ETF.
Based on the impact of ETF on the market, we can summarize the ETF pattern in the United States: high expectations and a big increase before going live, followed by a decrease in positive news after going live, and then a gradual slow increase due to the positive impact of ETF approval.
However, looking back at this cycle, although there have been narratives about AI, DePIN, and Restaking, there hasn’t been a breakout trend or project like Uniswap leading the DeFi summer or the NFT trend where everyone changes their avatars or StepN leading a nationwide movement. This has left many investors and builders confused about this cycle. What kind of bull market will this cycle bring?
Everyone has made different choices, whether it’s building in the BTC ecosystem, the DePIN/AI track, or focusing on full-time meme trading. Everyone has placed their bets based on their own beliefs.
Overall, the exploration of projects can be roughly divided into two factions. One is the financial faction, which believes that the development of Web3 is closely related to finance. Whether it’s DeFi, NFT, or the BTC ecosystem, the essence is still centered around financial gameplay and asset attributes. The other faction is the Web2 integration faction, which combines social, gaming, infrastructure (DePIN), AI, etc., and hopes to explore new scenarios by combining Web2 tracks with blockchain/cryptocurrency.
In previous research reports and analysis articles, I have discussed the current status and challenges of combining AI with Web3, as well as the development of the BTC ecosystem. Today, I will talk about DeFi, the representative track of the financial faction.
II. Why DeFi Can Explode – The Explorations of Pioneers
DeFi is a well-known track, and it plays a very important role in a public chain and the entire Web3 industry, whether it’s the most representative Uniswap in the DEX or dYdX in the derivatives track.
Before the birth of DEX, people traded cryptocurrencies through centralized exchanges. The advantages of centralized exchanges are similar to Web2 – fast speed and simple operations. However, the disadvantages are also obvious – low transparency and poor security. The collapse of a certain CEX giant also shattered the hearts of many people, especially for Web3 users who prioritize asset ownership, security, and transparency.
In 2018, Uniswap V1 was born, using an automated market maker model (AMM) to create a decentralized exchange that allows users to trade directly with smart contracts, instead of the traditional buyer and seller market with an order book model. This innovation led to a new track. Later, with the introduction of V2 and V3, which included features such as built-in price oracles, support for centralized liquidity, and multi-tier fees, the user experience of DEX continued to be optimized. Uniswap firmly established itself as the leader in the DEX track.
On the other hand, dYdX, as a pioneer in DeFi derivatives, chose to use the order book model to provide leverage and contract trading services, which is more similar to the traditional financial model. With high liquidity and a large number of trading pairs, it once occupied a high market share in the derivatives track along with Uniswap, leading the DeFi Summer.
III. Challengers and the Future of DeFi
In the subsequent development of DeFi, DEX and derivatives took different paths.
1) DEX tied to a specific chain: From the TVL (Total Value Locked) of DEX, the development of DEX is basically tied to a specific chain. Whether it’s Uniswap taking off with Ethereum, Pancake tied to BSC, Raydium tied to Solana, or Optimism’s Velodrome and Base’s Aerodrome, DEX is essentially similar and its takeoff is closely tied to the status of the chain.
2) Innovation in derivatives: On the other hand, derivatives have seen more innovations in gameplay. For example, GMX, which was launched in 2021, defeated the previous leader, dYdX.
Now let’s analyze why GMX was able to rise rapidly and what its innovations are compared to dYdX. I believe there are two core innovations:
1. LP-provided liquidity pool: GMX uses an LP-provided liquidity pool combined with price oracles to allow users to trade quickly while maintaining low slippage. – Benefits users
2. Innovative profit-sharing mechanism: 70% of the profits are distributed to liquidity providers (GLP holders), and 30% is distributed to GMX token holders. – Benefits liquidity providers
These two innovations accurately cater to both ends of the trading spectrum: users and liquidity providers, allowing GMX to emerge as the new leader in the derivatives market.
After GMX, there have been other interesting derivatives projects eager to try. For example, SynFutures on the Blast chain has recently achieved record on-chain trading volume. After a closer look, there are several points worth noting:
1. Wealth effect of the Blast chain: From Blur to Blast, the Blast chain has had a wealth effect from the beginning. Choosing to deploy SynFutures on the Blast chain is a very smart move. – Attracts users
2. Centralized liquidity of oAMM: Similar to Uniswap’s centralized liquidity strategy, oAMM of SynFutures allows LPs to add liquidity to specific price ranges, thereby increasing liquidity depth and fund utilization efficiency. – Benefits liquidity providers
3. Permissionless listing with oAMM: In addition, oAMM, like other spot AMMs, supports permissionless listing, allowing anyone to create perpetual contract trading pairs, expanding the range of tradable assets. – Benefits liquidity providers
Furthermore, I find the most interesting aspect of SynFutures is the combination of AMM and order book. Let’s take a closer look at this innovation.
As mentioned in point 2, oAMM allows LPs to concentrate liquidity in a specific price range, and the price range can be divided into multiple price levels, allowing liquidity providers to provide liquidity on SynFutures in the form of on-chain limit orders. This order book-like liquidity provision model allows market makers from centralized exchanges to participate more familiarly and conveniently, essentially similar to the limit order model of centralized exchanges, further improving the liquidity of the pool. With improved liquidity attracting more users, a positive feedback loop is formed.
Currently, SynFutures has a daily trading volume of over $1.3 billion, surpassing established projects like dYdX with $1.2 billion and GMX with $180 million (not in the top ten). It has shown great strength in terms of trading volume, bringing new vitality to the derivatives track.
In conclusion, both the financial faction and the Web2 integration faction are looking forward to the emergence of more native and interesting projects that involve more people and money. In the short term, this will provide support for the eruption of the bull market in this cycle, and in the long term, it will lead to more integration into the traditional world and the birth of more mass adoption projects.
