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【Dapp Pocket】DeFi Weekly Report - Third Week of May

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【Dapp Pocket】DeFi Weekly Report - Third Week of May

This Week Summary
This week, the DeFi platform dYdX officially launched Bitcoin perpetual contracts, aiming to bring more liquidity and leverage options to DeFi users; the new DeFi blockchain platform Celo completed the auction fundraising of Celo Gold, raising a total of 10 million US dollars; the largest bank in the United States, JPMorgan Chase, will provide business cooperation for Coinbase and Gemini; and Reddit will issue its own cryptocurrency in two subreddits, which are currently in beta testing. This week's highlights include a response from Ryan Adams regarding Reddit's coin issuance, Vitalik explaining the significance of large holders selling ETH, and a post by J.K. Rowling unexpectedly gaining popularity, which is about Bitcoin; this week's expert visit, we are honored to invite Tempo, the founder of Strike Protocol, to talk to us about Strike Protocol and his entrepreneurial story. Our perspectives will discuss the advantages of DeFi perpetual contracts compared to centralization, and what changes Reddit's coin issuance may bring.

DeFi (Decentralized Finance) refers to decentralized financial services. Simply put, it operates in a decentralized manner to solve issues in the traditional financial industry, such as slow transaction speeds, high costs, vulnerability to hacking, and potential misuse by countries or organizations. The current DeFi ecosystem can provide interest-bearing loans, asset shorting, high leverage operations, and even unique flash loan services.

Author Introduction

  • Raizel / Economics major at NCCU, got stuck in Bitcoin and shifted focus to DeFi
  • Thomas / DeFi enthusiast in chip design from Boston
  • Anderson / Founder of Dapp Pocket, believes in DeFi deposits over bank deposits

Weekly Highlights

dYdX launches Bitcoin Perpetual Contracts

DeFi platform dYdX officially announced the launch of Bitcoin Perpetual Contracts last Wednesday on its blog, allowing users outside the U.S. to trade. dYdX aims to gather more market feedback and plans to introduce new perpetual markets in the coming months. Over the past three weeks, with the participation of over 50 Alpha traders and partners, dYdX conducted stress tests during market volatility, collected UI feedback, and increased liquidity in the market maker order book. dYdX advises traders to gradually increase trading volume and transition slowly to large trades.

MakerDAO: Shake Off Your Fear of Cryptocurrency

Recently, DeFi lending platform MakerDAO published an article on its blog about people's fear of cryptocurrency due to lack of understanding. The article mentions the anxiety caused by the industry's jargon, protocols, and contracts, leading to fear of cryptocurrencies. However, when people realize that the financial solutions provided by blockchain technology are more efficient and cost-effective than those offered by traditional financial service companies, the fear dissipates. The article cites the example of email in the 80s, where people initially struggled to understand it but eventually embraced it as a superior service.

Accredited Investors on Coinlist Pour $10M into Celo Token Sale in Roughly 12 Hours

Financial application open-source platform Celo completed its token sale of Celo Gold (cGLD) on Coinlist last Tuesday, with the final auction price at $1, selling a total of 10 million tokens. Approximately 509 investors from various countries invested over $10 million within 12 hours, with most investors coming from Germany, the UK, Turkey, India, Malaysia, and Vietnam, spending an average of $19,646.37 each. Additionally, Celo will also open user staking.

Reddit Launches Blockchain-based Points System Beta Test, Limited to Cryptocurrency and FortniteBR Subreddits

Reddit officially began testing a blockchain-based points system, currently limited to the "Cryptocurrency" and "FortniteBR" subreddits, issuing two ERC20 tokens, MOONS and BRICKS, based on Ethereum. These two subreddits currently have 1 million and 1.3 million subscribers, respectively. In the test version, users in these subreddits can earn tokens by contributing content and use them for voting, tipping, and token transfers. Additionally, users can manage tokens through a platform called Vault, similar to an Ethereum wallet, where users can create and use it to view and spend these tokens.

Other highlights:

Key Data Metrics

The data for this week is from May 13th to May 18th, with price data collected around 8:00 PM. TVL stands for Total Value Locked, indicating how much value is locked in the platform. Data sources include DeFi Pulse, CoinMarketCap, Maker's official website, Compound's official website, AAVE's official website, etc.

DeFi Lending Platform Scale

DEX Scale

Expert Insights

Ryan Sean Adams: Reddit to Issue Coins on Ethereum, Don't Say We Didn't Warn You.

Regarding Reddit's upcoming issuance of tokens on two subreddits based on Ethereum, Mythos founder Ryan Sean Adams shared his views on Twitter. He mentioned Reddit being the 7th most visited website globally, with 64% of users aged 18-24. To him, this essentially means millions of Gen Z users immediately receiving Ethereum wallets.

"Ethereum is incredibly underestimated." "Don't say we didn't warn you."

JK Rowling: I Don't Understand Bitcoin, Please Explain.

Harry Potter author JK Rowling recently tweeted a simple inquiry about "What is Bitcoin," unexpectedly sparking responses from thousands of people explaining it to her. Among them were responses from cryptocurrency experts:

  • Vitalik Buterin: "Bitcoin is a digital currency with a circulating supply of about 18 million, although it has no underlying value reserve, it is valuable just because it is, like a collectible."
  • Justin Sun: "Seeing is believing, I can send you a Bitcoin."
  • Elon Musk: "It's pretty much that. Most currencies are backed by the government, so compared to those, Bitcoin seems more reliable."

Expert Visit

Episode five of the DeFi expert visit, we are honored to have Strike Protocol's founder—Yanwen Tempo, to share his DeFi entrepreneurial journey with us. Strike is a protocol for DeFi derivative financial products built on Ethereum, offering perpetual swap trading pairs like ETH/USDC, BTC/USDC, and the protocol's governance token SKE, which can be staked on the platform for rewards. Tempo is a serial entrepreneur spanning Taiwan and the U.S., with a wealth of experience and insights to share.

The Story Behind Strike?

In 2015, Tempo and partner Li Shaogang started their entrepreneurial journey, trying various ventures. In 2017, inspired by Cryptokitties, Tempo, who had previously worked in game development, was intrigued by the uniqueness of game assets. After researching blockchain for a while, he discovered that tokens were the most interesting aspect of the industry, especially in financial applications. At that time, there was no DeFi terminology, and Compound had just emerged. After much consideration, Tempo and his partner decided to create an on-chain capped options trading platform—Cinch. However, facing issues like lack of initial liquidity and financial background, fundraising did not go smoothly. Fortunately, they were invited to join the Binance accelerator, where they quickly pivoted to collaborate with several accounting firms in San Francisco to create accounting tools suitable for the cryptocurrency industry—Decore. However, due to the complexity of cryptocurrency accounting and the lack of standards, the service struggled to establish itself. In 2019, while attending Devcon in Osaka, Tempo and his partner noticed that most blockchain teams were focused on Layer 2, privacy, DeFi, and other topics rather than accounting tools. They redirected their focus to DeFi and observed a lack of successful derivative financial product platforms, attributing this to liquidity constraints. Drawing inspiration from automated market makers like Uniswap, they decided to develop a DeFi derivative financial product protocol based on AMM—Strike Protocol.

What is Strike?

Strike is an AMM-based derivative financial product platform built on Ethereum. Once launched this year, it will offer perpetual swap trading, including pairs like ETH/USDC and BTC/USDC, with prices provided by Chainlink's oracle. Additionally, Strike will issue its token SKE, which users can purchase and stake in Strike's liquidity pool for returns. Finally, Strike's governance model will transition to DAO, where SKE holders or stakers will vote on various protocol parameters.

Strike has two pools: an insurance fund and the SKE liquidity pool, serving as the first and second lines of defense. When a "funding payment is negative" or "the asset price drops too quickly for liquidation," the insurance fund is used first. If the insurance fund is depleted, the liquidity pool is tapped.

There are three types of participants in the Strike system: traders, stakers, and keepers. The trading experience on Strike will be similar to BitMEX, where traders pay a funding rate, and perpetual contract rules are similar. Regarding staking, as long as the system does not utilize the liquidity pool, stakers will receive stable returns. Keepers are external liquidators and arbitrageurs the system relies on. Initially, with a lack of external liquidators, the system will depend on Strike's team funds for liquidation until the platform is fully operational.

For further understanding, please refer to the system architecture diagram provided on the Strike website.

Comparison of Strike with Uniswap, BitMEX, dYdX?

Both Strike and Uniswap's AMM are based on the constant-product curve, where the quantity of tokens in the liquidity pool's trading pairs remains constant. The difference lies in the fact that while Uniswap's trading fees allow liquidity providers to earn, they may incur net losses when token prices fluctuate; Strike rewards SKE stakers irrespective of the perpetual contract trading pair's price movements. BitMEX is a centralized derivative financial product trading platform, and the opacity of BitMEX's operations, especially during the March 12th market crash, raises concerns. On the other hand, dYdX does not use an automated market maker but follows a traditional order book system, essentially moving BitMEX to the chain, albeit with centralized characteristics in the matching process.

About Entrepreneurship, Share with Us a Challenge and Reflection

Tempo expressed that predicting what the market wants is challenging. Often, after investing much effort and cost into a product before launch, the market response may not meet expectations, forcing a decision on whether to abandon it. This is not an easy issue to solve. Tempo believes that many people tout lean startup methodologies but lack practical experience. For instance, in the messenger app sector, Line offers various services considered basic and essential by users, and any service competing with it must meet the same technical and functional thresholds, making it challenging to create an MVP. While some advocate not developing during MVP, Tempo agrees but finds it difficult, as the service's value is only evident after pushing it to thousands of users. Achieving this scale requires significant effort and cost in development. However, in new areas like DeFi, where barriers to entry are lower and fewer players are present, entrepreneurs have more opportunities to excel.

In the software industry, the mainstream idea that "execution is more critical than the idea" is wrong, according to Tempo. Software projects already have excellent methodologies for development, testing, and shipping; thus, starting with a reasonable idea is the most crucial aspect—why at this time, the business model's rationality. In essence, multiplying the projected pricing by the expected number of end-users and whether it is reasonable. Tempo recommends further reading on the idea's rationality analysis by Avichal Garg and Andrew Chen. Tempo also described his time as an analyst at a VC firm, where he classified cases daily based on their potential, and realized that only reading business plans and slides could not determine if they were worth investing in. When starting his own business, he acted on impulse, jumping in with limited resources. Sometimes, having too many resources can be noisy, as many startup mentors offer advice that may not be valuable to novice entrepreneurs.

Rapid Fire Questions

Q: What are the advantages of starting a DeFi business in Taiwan, and what should one pay special attention to?

No advantages. It's essential to communicate more with U.S. teams.

Q: Thoughts on Eth2 staking? Will you participate, and how?

Sharding is a mistake. The Ethereum Foundation should abandon