DeFi vs. Crypto Dollars

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DeFi has been the most influential meme of the last year or two in the blockchain/crypto space. It is easy to explain to the crypto generalist and captured the essence of already existing projects with a catchy name.

Memes create virtuous feedback loops. A name enables people to start talking and writing  ( 🤔) about DeFi, which then leads to more users and then more developers building applications. New projects allow for new content that kicks off a cycle of sustainable growth. Attracting new users is easy because of the simple-to-understand name, which also acts as a cohesive gel to a community and industry.

What is a stablecoin?

“Stablecoins” have been the most successful product of the last year or two in the blockchain/crypto space. Initially, stablecoins were not intended to be pegged to an asset (say, the US Dollar) but just stable in the sense that it had low price volatility, like the original Maker design, which was not pegged to the dollar.

Bitshares launched a synthetic USD stablecoin in 2016, followed by Bitfinex’s launch of the fiat-backed Tether on Bitcoin’s Omni network in 2017. For most of 2017, “stablecoin” was synonymous with “Tether” which was synonymous with “sketchy”.  

Then, in 2018 a flurry of centralized and decentralized stablecoins announced plans to launch; most of the decentralized ones never materialized, but several major exchanges now have successful stablecoins, along with TrueUSD, PAX, and of course, Dai.

Their growth continued unabated in 2019 and was pushed into overdrive with the market crash in March and the scramble for (any) dollars.

Crypto dollars

Over the last few months, stablecoins have gotten the attention of financial regulators and government-backed digital currencies have broadened imaginations on the scope and possibilities of “stablecoins”, which also may have led to proliferation of the use of the term “crypto dollar” instead of stablecoin. It seems more accurate and easier-to-understand for new entrants.

The question is, how will the use of “crypto dollars” as a meme affect crypto dollars as a product and DeFi as an industry (and meme). It has a further potential reach than stablecoins and a more diverse set of participants than DeFi – all major crypto exchanges itching for seignorage and every base-layer blockchain aiming to be the settlement layer.

Then, of course, new entrants and use cases of crypto dollars from the virtuous meme development cycle and the world’s demand for the US Dollar. What happens when crypto dollars go from $10bn to $100bn? Will non-crypto investors trade crypto dollars? Or will crypto dollars expand beyond trading into retail and non-trading use cases?

And perhaps most interestingly, how much of “crypto dollars” will be in DeFi?

Go further:

Chart of the Week: DeFi’s biggest tokens reflecting a shakeup in the largest DeFi tokens, thanks to the rocket ship ride of $ZRX (0x) the past few days. It’s unclear why the token pumped, but it’s still up 70% over the last week even after a correction + a broad market downturn. DeFiMarketCap includes tokens not in circulation, hence why MKR is still ahead on CoinMarketCap and it doesn’t include LINK. Also, MKR is still recovering from losses thanks to Black Thursday fall out. The 5 largest “DeFi” tokens, however, are all above $100m market cap and relatively well-diversified cross lending, exchanges and Oracles.

Tweet of the Week: Liquidity all the way down

There are two battles masquerading as one. One is a battle between DEXs and lending protocol for underlying liquidity, and the second is a battle amongst wallets and front-ends for users. In the future, these paths will bifurcate and we are not likely to see “one super fluid protocol”. There will be liquidity aggregators that sit in between, which we’ve already seen, of course, with 1.inch, DEX.AG, Paraswap for DEXs and on the lending side, Idle Finance, iearn, RAY and even Curve.Fi to an extent.

Odds and Ends

  • RadarRelay relaunches, focuses on mobile and integrates more liquidity sources Link

  • Synthetix partners with Optimism to launch Layer 2 demo Link

  • Strike: Decentralized Perpetual Swaps for Every Asset Link

  • Paradigm-backed Yield hopes to bring fixed-rate borrowing to DeFi Link

  • Link

  • 10 things to watch at Consensus Distributed Link

  •’s DeFi user survey Link

  • Kyber Ecosystem Report #14 Link

Thoughts and Prognostications

That’s it! Feedback appreciated. Just hit reply. Written in Brooklyn (again). Happy Halving Day! Bitcoin is cool too. Don’t forget to subscribe to Govern This. Ready for euchre now.

Dose of DeFi is written by Chris Powers. Opinions expressed are my own. All content is for informational purposes and is not intended as investment advice.

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