Re-examining Defi: The present and future of the most mature track of Web3 business model

Moderator:Alex , Research Partner, Mint Ventures

Guest:Min Dao , founder of dForce

Recording time: 2024.12.12

Hello everyone, welcome to WEB3 Mint To Be sponsored by Mint Ventures. Here, we continue to ask questions and think deeply to clarify facts, explore reality, and find consensus in the WEB3 world. To clarify the logic behind hot topics, provide insight into the event itself, and introduce multiple perspectives of thinking.

This episode is the second episode of the "Current Status and Future of Web3 Track" podcast series. Let's talk about the present and future of Defi, the most mature track with Web3 business model . In the last issue, we talked about the topic of Crypto AI . In subsequent series of programs, we will invite corresponding guests to talk about topics related to Meme, public chains, Depin, games & social networking, Payfi, and web3 policies.

Disclaimer: The content we discuss in this podcast does not represent the views of the institutions where the guests are located, and the projects mentioned do not constitute any investment advice.

Alex: In this podcast, let’s talk about Defi. We invited Teacher Mindao, the OG in the DeFi field, who had also participated in our podcast before. At that time, he was talking about AAVE and stablecoins. First, I would like to ask Teacher Mindao to say hello to our audience.

Min Dao: Hello everyone, I am very happy to come to Mint Ventures again today to talk about DeFi. It has been a while since the last time we talked. The entire DeFi track has changed a lot. I think I can take this opportunity to share with you. A summary and sharing of some observations.

Understanding and interpretation of Defi

Alex: Okay, looking forward to it. Among the listeners of our program are many friends who have not officially entered this industry, and there are also quite a few new friends who are interested in Web3. So the first topic we want to talk about is for those friends who have not officially entered this industry. Teacher Mindao actually started practicing in the field of DeFi a few years ago. If you have friends who are not very familiar with encryption or Web3, and they ask you what DeFi is, how would you use them? Can you introduce it in understandable language?

Mindao: In fact, I face this problem every cycle, which is how to explain Bitcoin, Ethereum, and DeFi. Because Bitcoin has reached a new high at this point in time, many people in the industry will ask me what DeFi is. I think the good thing about this is that many people have a concept of Bitcoin, which is a non-sovereign currency, or electronic gold, and a decentralized system. So now these friends ask me if they know anything about Bitcoin itself, my simple statement is: Bitcoin is a currency, we treat it as a decentralized currency, then DeFi is an expanded version of Bitcoin. In addition to currency, all the financial systems that we have access to in traditional finance, such as transactions, payments, lending, and banking services, can actually be realized in the expanded DeFi field. You can think of it as an expanded version of Bitcoin, an application version of Bitcoin. This is what I explain to my friends now, and many of them can also get it. Of course, if you don’t understand Bitcoin at all, you may need to introduce it from the perspective of decentralization and non-permission, but I think most people now can easily get DeFi itself if you use this metaphor. some essence of.

Alex: Yes, then they often add another question, that is, Bitcoin can be understood. It is an electronic gold and a non-sovereign asset, but most of our current traditional financial services seem to be quite convenient. DeFi provides What is the additional value of ? If they ask that, how do you think they can sum it up?

Mindao: Because I come from traditional finance, I think people who work in traditional finance actually know that the current supervision of traditional finance is completely over-regulated, which is why it is particularly difficult to open a bank account now. There is now a lot of debate in the United States that many technology companies, especially some entrepreneurs in the currency circle, have been so-called debanked (cancelled banking services) and have no banking services at all. I think if we really compare with 10 or 15 years ago, traditional financial services are becoming more and more difficult to use, the threshold is getting higher and higher, and the resistance is getting bigger and bigger. So I think the biggest difference between what DeFi provides and traditional finance like TradeFi is that essentially I think DeFi is a return to the essence of finance, which is an information network. Our traditional finance has completely fragmented this information network. The different regulations of various countries, the supervision of banks themselves, and the differences in policies have resulted in information transmission being completely fragmented, and the resistance is extremely high. DeFi restores it, and finance is information. So whether you are doing transactions, issuing assets, or making loans, you are returning to the transmission of information without any obstacles, so-called non-permission. This is also what I think is the biggest improvement in traditional finance in DeFi. As long as your information can be transmitted back to the so-called speed of light without any obstacles, the capital efficiency will be thousands of times higher than that of traditional finance. And we now see that this is actually the case, that is, in DeFi applications, you have to compare with traditional finance, such as lending and banks, trading and exchanges. The stock exchanges in the United States still have holidays and cannot be opened on weekends. Countries need to open accounts and licenses. As an ordinary person, it is impossible to trade U.S. stocks, domestic stocks, and Russian stocks at the same time. But national borders no longer exist in DeFi. So actually I think DeFi restores finance to an information theory perspective, it is information. So DeFi is about transmitting information most efficiently and at the speed of light. But in traditional finance, you find that information does not travel at the speed of light. I don’t think it can even reach the speed of sound, because there are checkpoints stuck everywhere, including national border checkpoints, regulatory checkpoints, and checkpoints between banks. So in terms of efficiency, in fact, going back to the most basic principle, DeFi must be many times higher than traditional finance.

Views on the current situation of the Defi track

Alex: Got it, let’s talk about a more in-depth topic. In fact, as of today, we can think that DeFi has developed for more than two cycles. The real round of applications blooming was actually the last round, that is, the round of 20 and 21. We call it the first year of DeFi, or DeFi Summer. A large number of new projects emerged, but in fact they have survived to this day. Very few. And judging from the current number of innovative new projects in this round, there are far fewer innovative new projects than in the previous round. Teacher Mindao, how would you evaluate the current overall status of the DeFi track?

Mindao: In fact, I think the entire DeFi track is very similar to innovation in the technology field, especially the financial field. At the beginning, a hundred flowers bloomed, and various narratives came out. Because everyone has not yet understood the narrative itself, during the DeFi Summer, new financial methods really came out every day. But you find that after sufficient competition finally comes, a few tracks will settle down, which are what we call verified tracks. In fact, looking at these two cycles, I think the foundation of DeFi, which we call primitive, has not surpassed that of 2019. In 2019, we happened to be in the first wave of DeFi. You can imagine that in 2019 there were Uniswap, MakerDAO, and Compound. Compound was the first to do pool lending. Aave, which was also known as Etherlend at the time, was doing P2P lending. Its approach was wrong. Later, it copied Compound's approach and started its business. So at that time, the entire DeFi primitives were just three: stablecoins, AMM and lending. Let's look back at the present. The foundation of the entire DeFi has not changed. There are some variants above, such as making some order books, some including concentrated liquidity, and then AMM makes some improvements. In addition to the current pool lending, there is also isolation pool lending, but in essence I think it is not separated from these three methods. So the current situation on the track is that I think there are two particularly interesting changes from the two cycles. One change is that DeFi has been heavily commercialized. Every new chain, every Layer 2 that comes out, has the three big things: stable currency, lending, and AMM swap. These three major items, each chain, have been commercialized in large quantities. Of course, a lot of them are copied from the codes of these projects that are already in the market, because they are open source, and Uniswap and Aave all use these codes. But at the same time, another very interesting phenomenon is that while being commercialized in large quantities, the degree of concentration is also increasing. For example, Uniswap's spot trading share and Aave's share in the lending field are increasing. So this actually reflects that in the DeFi track, I think these two things, commoditization and increased concentration, happen at the same time. In fact, there have been many new DeFi applications in the past few years. Of course, this is also based on changes in everyone’s understanding of DeFi. From the traditional so-called DeFi with decentralization as its core, there are now many applications combined with De-CeFi. So I’m not saying that there is no innovation. In fact, the track has been highly standardized at the basic primitive level, just the three major items, and these three major items have also been commercialized in a very large amount, and the concentration is increasing. But at the segmentation level, some new DeFi applications and tracks have also emerged. I think this is a very interesting phenomenon that will appear as the infrastructure is developed.

Alex: Yes, you just mentioned three major things: stablecoins, lending, and AMM swap. And for derivatives, there are actually quite a lot of products that have been produced from the last round to now. What do you think of the derivatives category? Is it suitable to be done in DeFi? Are you optimistic about its subsequent development?

Mindao: This point may be related to another issue, that is, what is the underlying logic of the evolution of the entire DeFi track. I have always mentioned a so-called first principle of DeFi in my previous sharing. What are first principles? First of all, it must be where the resistance is greatest, and it will be applied first. For example, in the past, Ethereum Layer 1, you can think that its main medium is very powerful. Even if the speed of light is transmitted to Ethereum, because of its gas cost, its throughput is very small, so it can be used on the main network of Ethereum. The DeFi that happens is limited, which is the previous ones we talked about. For example, why did Aave fail to do P2P lending before, and why did it succeed with the pool model? Just because P2P lending cannot be used on a high-gas, low-throughput main chain, its efficiency is too low, and the efficiency of individual matching is too low. Similarly, why is order book not established on the Ethereum mainnet? At that time, dYdX did order book on the main network, but later withdrew it and went to StarkNet to do it. Now it is building an appchain to do it. You find that the order book on the Ethereum main network cannot work, and AMM is established. In fact, I think the establishment of all DeFi applications follows one principle: from low-frequency applications, such as lending, such as AMM, which are actually not that high in frequency, and stablecoins, which are also large-amount, low-frequency transactions, to In the future, layer 2 or new layer 1 with better performance will become more and more popular. After it comes out, you will find that mid-frequency and high-frequency applications begin to appear immediately. Then we just talked about the perpetual aspect, the so-called sustainability aspect. Why are centralized exchanges doing it now, rather than doing it on the previous Ethereum mainnet? Because centralized exchanges are a place where the most frequent applications can come out, perpetual can only be created in this environment. But what we see that is more interesting at this time is that the new high-performance layer1 and high-performance layer2, as well as appchain, these three tracks have appeared at the same time. We are talking about perpetual trading, and the magnitude is very large. For example, in Base, Synthetix Futures, and Arbitrum like GMX, and now Hyperliquid, which is very popular recently, is the Cosmos SDK like dYdX. You will find that in fact, so-called perpetual applications are high-frequency applications, and they must have a high-frequency application. The frequency infrastructure supports it. That's why we see a lot of perpetuals coming out this cycle. I feel that perpetual in this cycle may not be able to compete with centralized exchanges such as Binance or OKX, because it still has many performance problems. But I think with layer 1, including things like Hyperliquid, you can think of it as an appchain that is very close to the experience of a centralized exchange. With the emergence of this kind of application chain, I think it is entirely possible to compete with centralized exchanges in the perpetual field in the future. Of course, you can't compare one to one here, and you don't need to. Because after all, one exists in a DeFi or permissionless model, and the other has KYC and other things, which is more like a centralized exchange model. But in terms of performance comparison, I think it may be infinitely close to the experience of a centralized exchange.

The potential space and evolution of Defi

Alex: In fact, you just said that from 2019 to now, the three major items of DeFi, or the application types most proven by the market, have not changed much. Therefore, many people say that the basic innovation of DeFi has actually been completed, and think that there may not be too many surprises in the future. It seems that this round we haven’t seen as eye-catching products as the last round. However, some people still believe that the potential of DeFi is far from being unleashed. What is your opinion on this point of view? If DeFi still has a lot of room for growth in the future, what do you think are its driving factors? How might it evolve?

Mindao: In fact, at the basic level, because the entire DeFi is based on the blockchain architecture, which is block by block, we see why there is not much innovation at the basic paradigm level. Essentially, it is because whether it is the Ethereum main network or layer2 , or Solana, still build the underlying infrastructure according to the block by block model. But the whole DeFi, the change between this cycle and the previous two cycles is that everyone's understanding of DeFi has changed a lot. DeFi used to be called decentralized finance, but I feel that now everyone no longer regards decentralization as a core component. More importantly, permissionless. I have seen some quite innovative ones this cycle, like Pendle and Ethena. Pendle is an agreement for swapping fixed interest rates and floating interest rates, which is similar to a fixed income agreement. Ethena is a typical USDE stablecoin. In fact, its strategy for making stablecoins, when we entered the currency circle, I have been doing it since 2014, which is the so-called basis point arbitrage. In terms of the entire trading strategy, what the market has been doing since the advent of Bitcoin is nothing more than how to do basis arbitrage between spot and futures. Ethena turns this thing into a token, and then completely democratizes the so-called in-house strategy that was only used by some traders before, and then allows the market to capture the so-called fluctuations of Bitcoin or other currencies in this market. A basic income. If you ask our people in the last few cycles, no one would think that Ethena is a DeFi project, because its entire infrastructure is added to a centralized exchange for arbitrage, and although the assets are under custody, the custody itself is not What is entrusted in the contract is entrusted through the escrow agency. So from an architectural perspective, you can’t actually see it as DeFi. But from the perspective of its tokenization, from the fact that everyone can use its currency to mint it and swap its existing tokens, it is DeFi. So I think you can call it an application like De-CeFI or Ce-DeFI. There are many applications like this in this cycle, such as some projects in the Bitcoin ecosystem and some projects in liquid-staking, many of which are similar to this approach. So I think we have actually greatly expanded the definition of the entire DeFi at this time, and then you find the TVL contribution of the entire DeFi in the past cycle, there are a lot of these like liquid staking, as I just said Projects like Ethena, as well as on-chain projects like RWA, actually contribute a very large proportion of the entire TVL to the entire DeFi renaissance. So I think the evolution of DeFi is the evolution of the entire concept, from the purest so-called decentralized finance we used to have, to open finance, and now it is actually a hybrid, with centralization and decentralization mixed together. So from this perspective, I think the subsequent subdivision opportunities may produce many very interesting combinations. Of course, if you look purely at the most primitive, fundamentalist DeFi level, there really aren’t many options. Because basically no one is working on the previous track such as decentralized stablecoin, or there are basically no projects on the stablecoin track like Ponzi, which was especially degen in the past. Unlike the DeFi Summer when a lot of them came out, there are such decentralized stablecoins with on-chain governance. So I think after the entire definition changes, you will find that many new applications are still emerging in the DeFi track, and TVL is growing very fast.

Limiting factors for Defi development on Solana

Alex: Just now, Teacher Mindao mentioned that the first one is the change in the definition of DeFi. The other real value provided by DeFi has changed from so-called decentralization to permissionless, and then it is convenient and accessible to everyone. I have always had a problem before, that is, a chain like Solana is actually very different from Ethereum in that Solana may have fewer and more centralized nodes, and V God has been emphasizing that Ethereum’s nodes are decentralized. , has stronger censorship resistance. But now we return to the user experience. Decentralization is not that important. In fact, Solana is very good in terms of accessibility, that is, technical usability, and experience. But even though Solana has reached this cycle, we found that its DeFi evolution is not very resonant with the business data of its entire ecosystem. When we look at its DeFi TVL, the stablecoins on the chain, and some TVLs of DeFi projects, it seems that they have not evolved very fast, compared to the business data of Ethereum. For chains like Solana, their DeFi evolution is relatively slow. What do you think are the possible reasons or limiting factors?

Mindao: Actually, I think this is because people may have a big misunderstanding about DeFi. They think that as long as a chain is fast enough, funds can be transferred to it immediately. Because we have been doing DeFi since 2019, I think DeFi is the same as all financial companies. The longer it runs, the more sticky it becomes. The so-called stickiness of financial companies is actually a safety threshold that is constantly increasing. For example, how do you test whether a system's DeFi is robust enough? For example, Ethereum's current DeFi system is approaching a TVL of US$200 billion. It is equivalent to saying that there is a bounty of 200 billion US dollars in the ecosystem, which means that the funds are used for various hackers to attack. The TVL here did not come out of thin air. It was only after Ethereum had already incurred losses of nearly tens of billions of dollars in the past that such a high moat appeared. So why Solana can't migrate this thing? In fact, the entire trust cost and security cost are very sticky. This is why the value of Ethereum is that as long as there is enough time to operate forward, these TVLs are difficult to migrate. And I think another very key issue is that because I have used new applications in these ecosystems, I don’t think that in terms of interactive experience, chains like Base or Arbitrum’s chains will lose much to Solana. . The gas cost is actually lower than Solana, so it is used on Base. The only bad thing? I think it depends on the user's perception. As far as Solana is concerned, there is no layer 1 or layer 2, and there will be no so-called confusion. But there are too many Ethereums, Arbitrum, OP, Base and Superchain are just a bunch. Conceptually, I think retail investors may have this kind of confusion when it comes to go to market. Going back to the question you just mentioned, why do you say that its TVL and its DeFi cannot migrate there so quickly? I think this network effect, including Solidity as a development language, first has the most complete tools, and then has the most The audit cases have the most components. From this point of view, I think it is very difficult for a chain like Solana to be completely copied. And back to the most fundamental question, why does Ethereum go to Layer 2 and what are the advantages of Layer 2 in competing with a single chain like Solana in the future? In fact, I think if more companies want to issue a chain in the future, because you don't expect Bank of America or JP Morgan to say, "I will put all my financial infrastructure on Solana, they will definitely issue a chain." In this case, you will definitely choose a large public chain to support it. For example, it may be a Layer 2 built on Ethereum. Under this premise, if you can actually find more TVL and combinatorial applications, from this point of view, I think it will be more difficult for Solana to leverage the TVL of Ethereum. So you find that the network effects between TVL are mutual restraints. It is not simply that when the currency of my chain rises, all the applications of my TVL will be over. Including the interesting phenomenon I saw recently is USDT. USDT is now integrating the coins of all its chains, migrating many other Layer 1 USDT currency issuance rights to the Ethereum main network in large quantities. In fact, it is also based on safety considerations. Therefore, with the so-called stickiness and security of DeFi, I think that no matter how good the experience is with other new Layer 2, it will be difficult to pry this thing off in a short time, let alone on Ethereum. As I just said, in fact There are many Layer2s that will not be worse than these new Layer1s in terms of performance.

Advantages of MOVE language

Alex: Got it. Suppose we see that many public chains in the MOVE language, including some EVM-compatible Move L2, have been released. Recently, Movement has just been listed on Binance. As for the MOVE language, one of the value propositions they have been promoting is that using the MOVE language to build DeFi is safer than the Solidity language compared to various financial services. As a developer and entrepreneur, do you think this advantage of the MOVE language is so attractive to developers?

Mindao: We have seen all of these ecosystems, including Solana and their team, who we have known each other for a long time. They all use Rust. In fact, in terms of expressiveness, Rust language may be much better than Solidity. It can Make a lot of stuff. Not only MOVE, in fact many new public chains like Tezos have developed their own new languages, and they also use various so-called formal verifications. But you will find that these new languages ​​​​disappear quickly. I think the core problem is that it is difficult to strictly say which language really has innate advantages from an architectural perspective. I think for a developer, the most critical thing is time, which is your timing. The sooner you use it, all the mistakes and problems that should arise in Solidity have been filled in by our developers with real money. In this case, would you say it is more unsafe? At least from our development perspective, that's not how I see the problem. Because it has enough cases, enough tool support, enough automated auditing tools, enough auditing companies covering it, and enough hackers. For example, it's very simple. If I send a bounty, there may be tens of thousands of white hat hackers in the Solidity range, but there may only be hundreds or thousands of hackers in the MOVE and Solana ecosystems. So I think security itself is a variable, and there is no absolutely so-called safe language. The biggest problem is how the new language will build its own moat in the future. If there is not enough potential energy to start, it will actually end up in a state, just like burning firewood. The firewood is wet and will never reach the ignition point. In this case, its security itself may not be a deterministic thing, unlike Solidity, which has enough written cases to verify it. So I think there is no so-called absolute advantage or disadvantage in the language itself. On the contrary, I think it is very difficult for a language to be replaced if it has a network effect. This is why we have recently seen efforts like Monad to use EVM for compatibility with Solana’s high-performance underlying architecture. You see that there are quite a lot of new infrastructures at Layer 1 coming from that route. How can we make the new higher-performance infrastructure of some public chains, such as EVM, compatible with this execution environment, or make a new The public chain comes out. There are actually quite a lot of projects along this route now.

The impact of political changes in the United States on the encryption

field

Alex: I understand. As you just said, Monad, including Movement, seems to be in this direction. Then this year, a pretty big policy change actually happened. Starting in November, Trump won the presidency, and the Republican Party also won a majority of seats in the House and Senate. In particular, the United States seems to have greatly changed its expectations for the development of the encryption industry. Recently, the Fifth Circuit Court of the United States ruled that OFAC’s previous sanctions against Tornado Cash were illegal. What do you think of the impact of the current political changes in the United States on DeFi and even on the entire crypto field? What are the optimistic parts and what are the possible risk factors that are not optimistic?

Mindao: I think from an optimistic perspective, it has exceeded my most optimistic expectations. I did not expect it to be so cruel. It was the Trump bull market, and Trump’s children directly entered the DeFi project. I think the entire Crypto infiltration of the Trump administration comes from family members, such as Donald Trump Jr. His children have done DeFi projects, and Baron is because of another child who is still studying and is also in the Defi NFT field. I think it may have a particularly large impact on Trump’s inner circle. In addition, I saw Vance, and not to mention David Sacks, they were all infiltrated by people from PayPal mafia. So you can see that in the circle of roles that Trump can involve, basically all of them are Pro Crypto people. So I think on a political level, there's definitely more optimism than I expected, and I think maybe too much optimism. This is what I am more worried about, including whether to include Bitcoin in the US reserve. From an optimistic perspective, I think there is indeed no ceiling for this cycle. On the contrary, this optimism itself may break the so-called 4-year cycle in the previous currency circle. I think there is a high probability that at the legislative level there will be an entire regulatory framework for Crypto, instead of completely incorporating Crypto into the so-called security law system for supervision like the existing SEC. I think there may be a completely independent regulatory system. If this happens, I think it may not only be DeFi, but also very optimistic about the development of Web3 as a whole. From a pessimistic perspective, it is now clear that cryptocurrency itself is no longer a so-called non-partisan political issue. I think it has become an issue of partisan alignment. This is what worries me. After the entire election, the Republicans and Democrats have formed a front on Crypto and Against Crypto. I think cryptocurrency is now viewed as a polarizing issue in bipartisan politics. What if Trump cannot win the election in four years? Will these policies be changed again? This is a topic that has become difficult to return to neutrality, and it is a core issue between Republicans and Democrats.

Alex: Yes, Trump may not necessarily be elected in four years, but may be in the mid-term elections in 2026. Whether the Republican side of the Congress can win so many seats will also be a challenge.

Mindao: Yes, but I think what’s better is that the entire operation this time is not only about Trump’s coming to power, but also the Lobby in the House and Senate. In fact, the American political arena has already paid attention to the entire Crypto Lobby. Already a little in awe. What I mean by "awe" is not necessarily a complimentary word, it may be a derogatory word, but I think it has too great an impact. In particular, several Lobby teams supported by Ripple's organization have a winning rate of 85% in the election of the U.S. Senate. As for the Senator he backed, these 100 Crypto Senators have a winning rate of 85%, which is very high. winning percentage. So this is actually quite scary, as it means that all of the Against Crypto people may not have the opportunity to enter the US legislative agreement in the future. From this point of view, I think it may also trigger some counterattack from people such as the Democratic Party or Anti Crypto.

Alex: Yes, I see that Fair Shake is already preparing for the 2026 midterm elections and has raised tens of millions in advance.

Min Dao: Yes, of course this is a good thing, not only from the administrative level, but also from the legislative level.

Conjecture on the process of Bitcoin entering national finance

Alex: Judging from your current observations, one of the narratives that everyone is most concerned about in this cycle is the process of Bitcoin entering the national finance. Now not only the national level, but also the state level are enacting Bitcoin preparation bills. I think that relatively quickly, Pennsylvania and California are already submitting legislation at the House of Representatives level. Are you optimistic that it will be legislated at the national level in the next four years?

Mindao: I think it may not be that easy to legislate at the American level. I think it would be easier to handle at the state level, because the financial scope that the state level can control is relatively small. If we put it at the national level, I think it might be difficult. One of them is that I think there is still a very powerful faction in the United States. Most people think that although Bitcoin is now called electronic gold, many people still regard it as a non-sovereign currency. It is this positioning itself. I think the most fundamental thing is to fight against the so-called debasement of legal currency and the so-called devaluation of legal currency. So in terms of its fundamental purpose, I think there is a certain conflict with regarding the United States as the only international reserve. As far as the aspirations of most people in the United States are concerned. In fact, many people in the American political arena hold this view. They believe that although Bitcoin is called electronic gold and competes with gold, they believe that it ultimately competes with the US dollar. And indeed, it competes with all legal currencies. Because of the debasement of legal currencies, Bitcoin has room for growth. So from this point of view, I think the resistance is quite strong. Of course, this depends on how much political conviction Trump has to push this forward. It’s hard to say. Depending on his style, he might push really hard. But this does not mean that the President of the United States can just push it. It must be passed at the legislative level.

Alex: Yes, I quite agree with what you just said, because in fact, I see that many countries sanctioned by the United States, including Russia and Iran, now regard Bitcoin as a potential option for national reserves, and then their imaginary enemies are It’s the U.S. dollar, which means it’s better to use Bitcoin as a reserve. This will indeed challenge the U.S. dollar’s ​​status as a basic reserve asset.

Min Dao: Yes, so now everyone actually defines Bitcoin as electronic gold, which is actually a very clever strategy. Let’s just say that we are PKing with gold. We will first go up to the ratio of 13 trillion or 15 trillion, and then we will finish PKing gold first. Now no one talks about competing with the US dollar, but I think the bottom level is still the same. You want to talk about gold, but you are electronic gold and can be divided infinitely. How is that different from currency? There is no difference anymore. But the currency circle is also unwilling to make this issue particularly important. But I think the U.S. Treasury Department or the financial circle understand these very clearly.

The possibility of large companies buying Defi projects

Alex: Let’s talk about a topic more focused on DeFi. Now we have Bitcoin ETFs and Ethereum ETFs. It is no longer big news that listed companies and even government finance hold BTC. It is normal for most companies to buy Bitcoin. In your opinion, as the encryption industry becomes more compliant in the United States, will they consider considering some blue-chip projects in DeFi, such as Aave and Uni, as mergers and acquisitions of these traditional financial companies, or at least as a potential equity participation? Target, do you think this is likely to happen in the next one to two years?

Mindao: This is also a very interesting topic. We now see the actual relationship between Bitcoin ETF and Wall Street or traditional finance. They only regard it as another trading asset, such as electronic gold. In fact, it is still separated from traditional finance, that is to say, it is only regarded as part of AUM and part of the asset management scope. If users want it, I will give it to them. But I think there have been several interesting changes in this cycle. One is that, except for the two completely independent entities we just mentioned, there is actually no difference between Bitcoin and gold. My Blackrock company also provides different products for my users, and the others are actually not related to the Blackrock company itself. of. But Bitcoin and Micro Polices are more interesting. Micro -strategy is also a traditional company. It is a software company, but now it is a financial company. You can think so. But its relationship with Bitcoin is actually the relationship between the ETF and BlackRock we mentioned earlier, which is a completely independent individual. Bitcoin and micro -strategy are now twin relationships. Why is the twin relationship? The key point between connecting the two twin brothers is volatility. Bitcoin's volatility and micro -strategy stock volatility, these two points are connected together. Bitcoin fluctuations, its stock fluctuations. Its stock fluctuations will also affect Bitcoin fluctuations. So I think this is a particularly interesting phenomenon. In fact, such a double token mechanism has been established between Bitcoin and listed companies in the United States. One of them is Bitcoin and the other is the stock of listed companies, just like us Playing this bipolar in DEFI, the maternal economic model is linked to each other. It is particularly interesting that to some extent a double -prominent coin mechanism like Bitcoin and micro -strategy, it is a connection between traditional stock price volatility and Bitcoin. Then back to the DEFI level, to say that BlackRock to buy AAVE and buy Uniswap's Token, I think this matter is not enough to be SEXY. I have predicted that the twin relationships like Bitcoin and micro -strategy in the next three or five years will have the twin relationship between Bitcoin and micro -strategy. What does it mean? That is, a DEFI protocol controls a listed company. This listed company may be opened by the bank. It may be a lending or a Banking. The fiat currency is directly called to the DEFI on a chain. This is that I really think that it is possible to form such twin two currencies in DEFI and Wall Street companies. I think this is possible to happen in the next cycle. Because now we see that in addition to micro -strategy, including Marathon, and companies including many mining machines have begun to buy Bitcoin. The strategy of using micro -strategy is actually equal to that its stock is not only related to the difficulty of Bitcoin's computing power, but it is actually related to the price of Bitcoin. So I think that the biggest possibility of DEFI in the future and more interesting is that we are called "former listed company Defi". Your listed company is another channel for my DEFI to make debt issuance, to make equity financing, go to the bank's license plate, and then connect these two worlds. I think this is based on Trump's gameplay, such as the World Liberty DEFI he is doing now, may be stable in the next step, and then do you have to get a bank license in the next step? Companies are all possible. I really think it may occur in the next three or five years, and it will occur in this cycle of his office. Of course, in addition to him, the traditional DEFI project may also try some attempts in that direction. I think this is more interesting, just how to really establish a relationship in economic models in the mechanism. Your DEFI makes money, and the shareholders of my stock must benefit, and then the balance sheet of my stock will expand, and it will also help my Defi to get more traditional funds in. I think this is a more interesting combination.

Alex: This view is indeed unheard of before, and it feels very novel and imaginative. Previously, there were BTCs and micro -strategies of the stock version, and there were listed companies with the Defi version. I feel this is really interesting. That's the view of returning to those large financial institutions for DEFI. They may now be more like you say, configure a bitcoin channel, so that their customers can buy it, and they are more asset management. You feel that they will make DEFI -related financial applications by themselves. For example, like Palegers or some other financial institutions.

Min Dao: In fact, we see traditional Morgan Chase, and they have their own blockchain system inside. Of course, this is not connected to the public chain. The most most used in it is the settlement of foreign exchange. You can think that its entire mode is not much different from the CURVE mode, or there are not many differences in the UNISWAP pool. But this type of application is actually more liquidation between banks. I think this is what he may have to do in the first step. Then the next step is to push to the public chain and use the infrastructure of the public chain. This is also what we said before. In fact, I think the entire public chain competition, such as the single -chain model of Solana, or the model of we go to the Ethereum. What posture is accessing to the public chain. If he wants to do it in a controllable way, he must send a Layer2 or Layer3 himself, and then access it to the public network. So I think that if he wants to enter DEFI in the future, it must be controllable, that is, in a Permission chain. I think it may be like the models of Coinbase and Kraken, but they will be more conservative than them. This is the core of the gameplay that I think they ended, and they are more conservative than them. Because Coinbase is a company in the currency circle after all. But you find that coinbase is actually more conservative. When Binance is doing BSC, many gameplay is actually more aggressive than Coinbase. Why is it radical? Because Binance may have some of his own DEFI projects, it may be hatched or done by himself, but Coinbase basically does not really want to incubate this project. So I think that in the future financial institutions enter the market, it is likely to be similar to Coinbase and Kraken. He will lay a layer2, and then do some components of Defi up. And the probability may also use some open source code like Uniswap. However, they may add their permissions, access, and whitelists to his entire logic. I think there may be a high probability that it is unfolded in this way.

Alex: Understand. In fact, it is like Coinbase or Kraken. Basically, they have chosen OP's Stack without exception, and basically they have entered a big ecosystem of Superchain. I listen to your meaning earlier. In fact, if you also think that this large financial institution wants to do the chain by itself, the possibility of choosing Ethereum ecology is also greater, right?

Main Road: Yes, I think the level of the so -called chain performance you said, for the performance of Ethereum now Layer 2, including future improvement, I think it can fully meet the needs of these financial institutions. The most important thing is that I think Ethereum Layer 2 includes the current strategies between OP and Arbitrum two Layer 2. For example, now OP has done the ecology of many Layer 2 superchain. In the end, it may be solved to solve How to unite the liquidity between Layer 2 is the communication between chain, so that the transaction may be completed in one transaction in different Superchain's Layer 2 to solve the so -called Layer 2 split liquidity problem. I think that after this problem is solved, it will bring another network effect. More people will be willing to add it, and the network effect of liquidity is particularly strong. Then there is another person that it may become difficult to get rid of this network. This is why I actually do not worry about these coinbase independent. As long as this chain is enough, the liquidity and network effect between the chain are established, and it is not so easy to get rid of it. After you get rid of it, make a Layer 10 % of the islands, which may not have a better value than in the modern Layer 2 architecture.

Impression of projects and judgment dimensions

Alex: I feel that this is a deeper I have recently heard. What is the ecological ecology of Ethereum, which is a very novel and insightful point of view compared to SOL. You also talked about it, in fact, you also saw some new products in this round. So in the past year, which products have left you a deeper impression on you, whether it is the new development of old projects or the emergence of new projects.

Min Dao: I mentioned two, Pendle and Ethena. In fact, I think the PENDLE model is very twists, because at the earliest, they came out to say that they were doing so -called fixed and floating interest rate products. I saw it at the time. Because I am traditional finance, I think it is particularly bad design that it has a expiration date. I have always had a particularly big prejudice. I think that the products that have date in DEFI are basically a dead end. Including a lot of options transactions that have done such an expiration date, or the OPTION products such as futures transactions, they basically did not do it later. So when they came out at the time, they did this so -called fixed -income product. I didn't look at it at the time. I think this seems to be not established in Crypto. But after the LSD and the RESTAKING protocol this time, I think they did find this very niche Market. At least at this stage, a large number of these pledge agreements and pledge agreements. They did introduce two waves of games, one It is a big person who is interested in solidarity, and does not want to bet on UTOKEN's rise and fall or points. In addition, he met some retail investors or hairs, and they needed the so -called speculative needs of U token. I think it is well combined with these two groups. At least at this stage, I really find the market demand point. So I think there are many Defi narratives. When we look at it, we may easily deny it. Of course, I don’t think that this model is the final model. I think whether it is interest rate interchange or solid -collection product, there may still be a sustainable class, such as the solid income and variable vastness of sustainable categories. Demolition of benefits. It's a bit like a sustainable contract. Everyone can always trade, instead of Roll my posity after the date. I think PENDLE is also doing new things. I think this track really seems to find a very important application that he calls the so -called Product Market Fit. In addition, Ethena, I think he has turned a trading strategy we are used to it into everyone's general public, and now it has increased to $ 5 billion. I feel that the tokenization of the entire revenue market. From the perspective of the token level, they are still doing the best in terms of the trigger of retail investors. And now we see that after their products come out, all the exchanges are doing it, including Binance also pushed out FDUSD, and I saw OKX and Binance here. The interest rate of their borrowing market is actually basically basically The basic return of this rate arbitrage is anchored. So in fact, exchanges are also learning this strategy. So, these two products, I think this cycle is indeed in terms of innovation. It really can really find a better foothold. The other is the chain of government bonds. In fact, this cycle we see that in DEFI, it is completely different from DEFI Summer. When DEFI Summer was subsidized, there was no so -called Real Yield. However, we see that this cycle MakerDao is now conducted by a large amount of benefits from the underlying national debt. This is also what we said before. Are this thing called DEFI? It is not called DEFI according to the traditional definition. But this cycle is what we said, called the combination of de-CEFI. For example, we just said that Ethena, its positions are all on the centralized exchange, and then Makerdao's national debt is all offline trusts, theoretically, it is also very centralized. But you find that this so -called centralization and the combination of semi -centerization have solved many problems of real benefits, because these are real benefits, one from the leverage market, one from the benefits of U.S. Treasury bonds, and then through this kind of via this kind of US Treasury bonds. Real income allows users to get through DEFI distribution. So I think the entire DEFI evolution, we have seen from the definition of purely the so -called original teachings to the more pragmatic mixture, which is also a very interesting point in this cycle. In addition, a phenomenon that has appeared in the past year is that before we saw that Defi had coins, we must issue coins. We now see that PolyMarket, Pump.fun has a very so -called so -called income demand when there is no coin. What is this trend? It is like PolyMarket and Pump.fun without a good infrastructure. Both applications depend on a good infrastructure. Polymarket is based on Polygon and Pump.fun is based on Solana. So we can see that as our so -called Layer 2 and the new strategy are getting better and better, there will be a lot of tokens and may not require tokens, but at the same time, it will provide enough use. Value DEFI application. We are particularly obvious now. Back to what I just said, I said that the first principle of Defi is that as the performance is getting better and better, some applications that need to be dependent on this high -performance chain will emerge. This is a typical type of application. I think there may be a lot of this in the future. Including we see a lot of Trading Bot now, but Trading Bot is particularly profitable. It can earn 1 million or 2 million US dollars a week as Pump.fun. In this regard, I think it is particularly different from the previous two cycles we told us. In the previous two cycles, it was basically difficult to start a project without tokens. But now we see a large number of these types of applications, in fact, do not require tokens at all, and also find its market demand.

Alex: As an investor to invest in a DEFI project, you will focus on what dimensions of it, or what do you think of the more typical Defi project?

Min Dao: I think the length of the investment cycle. If you just look at the cycle of one or two years, it may be the kind of Narrate Driven, which is a little more about narrative Driven, such as investing in some more popular mechanism Defi projects. But from my perspective, I look at the longer cycle, which is the cycle. If we look at it from the perspective of a long cycle, we must truly survive a few cycles of projects. I used to think that the community was very important. It seemed to be a very strong community drive, but now I found that the DEFI project may not be the most critical. Because we now see that several Defi projects with the highest valuation and the highest moat may have little to do with the community. For example, UNISWAP is now the market value of tens of billions of dollars. Uniswap has a large number of users, but it is difficult to say that it has a community. AAVE is different. AAVE has a certain community. You can see the discussion in the forum. But Uniswap I think including AAVE and MAKER. There are two aspects of the last big moat of these projects. Of course, one is continuous innovation, and each time is a further innovation than Cycle. They also have a key point that the brand is particularly powerful. Anyone can forks uniswap now, V1 V2 V3, and fork it. I think UNISWAP's current market value may be 60% and 70% of its brand. And this is what others do not leave, I think these projects have basically done it. Of course, in DEFI, in fact, if you have a brand, you depend on two, one is the continuous innovation I just said. But you don't necessarily innovate the first. For example, AAVE is not the first innovation, but it is done from 19 years to now. Compound does not do it. Compound is now the founder who came out to do another project. After the real DAO, there are very few compound innovations, but AAVE is actually constantly innovating every cycle. The other is DEFI. I think the most core is security. Uniswap has not had security accidents. Compound, Maker and AAVE have happened, but at least these security incidents did not make them unable to get up. So when I think these two points are done, its brand value is continuously strengthened with each cycle. In this regard, I think it is its largest moat. It is difficult for you to see other projects below, and you can see that it is a project with a high concentration of concentration now.

Configure the principle of DEFI project

Alex: In terms of specific secondary asset allocation, in addition to BTC and Ethereum, some of the blue chips we are talking about, and projects such as Defi, especially some leading projects, will it be among the configuration list you invest? We still talk about long cycles.

Min Dao: I basically won't match. I do n’t deserve a fundamental reason that we have done DEFI, and I have invested time and energy in this set up. Therefore, this may be a relatively large difference between me and other investors, that is, we don't need to go to Double's thing, and more configuration in the public chain will be a little more configuration.

Alex: Understand, if an ordinary web3 investor, maybe there are BTC and Ethereum in his Portfolio, and then there are some public chains. Do you think projects such as DEFI should become part of most ordinary investors' investment?

Min Dao: Actually, I have shared it before. I think the investment portfolio is very important in investment. For example, when entering the currency circle in 13 years. I said at the time that in addition to Bitcoin, my investment portfolio invested 30% of the messy projects, and it must be a non -Bitcoin project. At that time, I voted a lot. In 14 years, Izong's ICO was cast, and I bet Ethereum. There are many ICOs in Ethereum, at that time there were about three or four. At that time, ICO was very small. In 13 or 14 years, there were very few. A few ICOs may be invested in a year. Basically, each of them was cast. Of course, the proportion of allocation was different. I think if it is a retail investor, the construction of the investment portfolio is the most critical, and it cannot all in Bitcoin and Ethereum. Of course, I really want to turn over this currency, not to double it. If you want to turn over, I feel that the first one cannot be all in mainstream coins. For example, some of the aggressive people are 100 % to the cottage. I know that someone around is 100 % compensated. If his ability to make money is strong enough, he has taken it out to distribute the funds, and it is not so -called to lose money. Then I think this strategy is not wrong. Just one percent of ALL in, even entered MEME coins into Degen coins, I think this is no problem. If you are building an investment, I think at least 30% of the so -called alternatives may be except for mainstream currencies. The DEFI is definitely a track worth allocating. In addition to DEFI, I don't know which types of applications in Crypto really have Value Capture. Now all the so -called Real Yield and Real Income are DEFI applications. So in this regard, if you really don't consider the mainstream coins, only the cottage coins are considered, Defi will definitely account for a very large proportion, and I think at least 50% of the proportion. Then the remaining 50%, you may make up some degen coins, MEME or other types of tracks.

Alex: Okay, today I am very grateful to the Mindao teacher for giving us very deep and involving the topic very widely shared. Next time, there are opportunities. Welcome to the topic of the Mindao teacher on the topic of DEFI and Crypto to share with our insights and views. Thank you for your time.