Six trending directions of the crypto market in 2021

In 2020, the crypto asset market will run wild, DeFi brought us to a frantic restless season in the summer.

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• Total assets of Layer 2 exceed 10 billion U.S. dollars

Every time there is a big market fluctuation or a new liquid mining project goes online, the level of congestion in the Ethereum network is no less than a traffic issue.

Therefore, the rise of Layer 2 is no longer a prediction, but abright card. Counting the projects that have a clear L2 plan for the top 10 DeFi agreements, the current lock-up amount is about 10 billion U.S. dollars. It is conservatively estimated that the amount of L2 assets will reach at least this magnitude.

The Layer2 running application + Layer1 for clearing and settlement is the ultimate vision of the Ethereum blockchain and becoming the asset settlement layer for all decentralized finance.

After the two camps ZK-Rollup and Optimistic Rollup divide the teams, the pattern of existing DeFi protocols may be broken.

The main DeFi protocol Layer 2 expansion plan:

In addition, the areas worth paying attention to also include the infrastructure support of the Layer 2 protocol, such as the native support of ENS and wallets, how to efficiently and cheaply enter and exit Layer 2, and how the assets and applications of various Layer 2 protocols are interoperable, which will continue to be an industry focus of development.

If public chains like Near, Solana, and BSC are also regarded as actual Layer 2 solutions, the entire asset scale will at least double, reaching an ecological market value of US$20 billion to US$50 billion is not difficult.

• The trading volume of DeFi derivatives agreements will exceed the spot trading volume

Marked by the fact that Uniswap's daily trading volume surpassed the leading exchange Coinbase on August 31, the DEX trading volume on Ethereum went from less than 3 million dollars a day at the beginning of 2020, and now it has grown to more than 1.8 billion dollars in only one year. The scale of DEX has risen more than 6000 times, and the growth rate of DEX is staggering.

The trading volume of DeFi derivatives is still far from the spot, and the combined daily trading volume of Synthetix and Dydx at the top is only $41 million, which is only 5.2% of Uniswap. In terms of the leverage effect of derivatives trading, the trading volume should exceed the spot trading volume. For example, Binance's daily trading volume of derivatives is 1.8 times the spot trading volume.

Focus on several directions with practical application scenarios, one is on-chain options, such as the use of options as a hedge against impermanent losses of DEX liquidity providers, options to hedge against contractual risks in agreements; on-chain options for Gas Fee, etc.

The second is the prediction market. The 2020 US general election will give the prediction market a small test. With a high probability in 2021, we will continue to witness history. The world without shortage of hot spots provides a steady stream of material for the prediction market. The third is interest rate products, such as fixed interest rates and interest rate swaps.

• The total value of the middle layer will increase by more than 10 times

In fact, the concept of the middle layer has not been accurately defined. The former USV investor came from Ligate. In 2016, the famous ``Fat Protocol'' defined the value of the protocol layer as a public chain, which opened up the public chain led by Ethereum. The first shot of chain value investment endorsement.

In 2014, before he published the fat protocol, he defined the technical framework of the blockchain in an article "Blockchain Application Stack", which is still applicable today.

Under the premise that Ethereum had not yet appeared at that time, the lowest level defined by Joel Monegro was the Bitcoin blockchain. Above it is the Overlay network, which corresponds to the Layer 2 layer that we have widely discussed today, the upper layer is the decentralized protocol layer, such as various DeFi protocols.

And between the application and protocol layers, including Commercial API and Open Source API, I think it should be the concept of the middle layer.

The oracle represented by the leading middle ware chainlink is actually the integration of Open Source API and Commercial API. The Graph is a service middle ware that extracts data from the DeFi protocol for applications, and new forms of middle ware such as Keep3r, Parsiq, etc. After the value capture model is gradually clear and the data on the chain is continuously enriched, the value of middle ware will not be lower than the protocol layer and the application layer.

• NFT moment will come by the end of 2021

If you calculate from the popularity of the "crypto cat" in early 2018, the time for the emergence of NFT applications is even earlier than DeFi, but the NFT track has been tepid, and the overall cumulative transaction volume is only 160 million dollars. The trading volume of a day on DEX is too small.

Encrypted artist Fewocious's early representative work "i feel so lost"

However, the NFT market, which is on the shoulders of DeFi, is indeed hopeful in 2021 to replicate the craze of DeFi last summer. The first factor, the NFT scene is gradually expanding, not only limited to the single field of game props, such as through the NFT of physical assets, financial products, etc., combined with DeFi applications.

The second factor, with the application of Layer2, the frequency of NFT transactions can be significantly increased. The original value of a single NFT is only $30 on average, which is not enough for a gas fee when Ethereum is congested. This will be resolved after the popularization of L2. In some scenarios where transactions are relatively low, such as encrypted artworks, the unit price of NFT will rise a step with the rise of social recognition. A case of an NFT work of millions of dollars may soon appear.

• issuance scale of decentralization stable coin exceeds 10 billion dollars, and the algorithmic stable coin exceeds 1 billion dollars

The DeFi boom in 2020 allowed the issuance of the decentralized stable coin Dai to exceed 1.4 billion U.S. dollars, an increase of more than 20 times compared with the issuance of 70 million at the beginning of the year (Debank data). It is no exaggeration to say that decentralized stable coins are the cornerstone of DeFi assets.

It is foreseeable that as the scale of the DeFi industry continues to grow (I personally think that even one day the concept of DeFi will be larger than the cryptocurrency), the scale of stable coins as the blood of the DeFi system will continue to increase.

Another fact that cannot be ignored is that the supervision of stable coins is gradually strengthening. Some members of Congress proposed the regulatory "stability bill" "STABLE ACT", which requires the issuer of centralized stable coins to obtain bank licenses, and the future stable coins The holder may also be required to pass KYC identity verification. In short, in addition to the USDT time bomb, I don't know when it will thunder. The current compliance trend of USDC/BUSD/TUSD will also be restricted due to regulatory upgrades.

Now the scale of all stable coins totals 23.2 billion dollars, and Dai accounts for 6%. We have reason to expect that the scale of stable coins will continue to grow in 2021. If the total scale reaches 100 billion dollars and the proportion of Dai increases to 10%, the total issuance of Dai The amount will exceed 10 billion dollars.

Recently emerging unsecured algorithmic stable coins, such as Ampl, ESD, DSD, BasisCash, MithrilCash, the current price fluctuation range is still too large from the price of 1 U.S. dollar, and cannot be effectively used as an anchored pricing unit, easily 50% The above volatility is even better than EOS in terms of stability.

If we take anchoring accuracy as the only measure, in fact, the stability of Dai is still incomparable with centralized stable coins, and efficiency has never been the strength of decentralized stable coins.

Therefore, for scenarios where the degree of anchoring is not strict and more emphasis on capital efficiency, there is still a great opportunity for algorithmic stable coins similar to ESD/BasisCash. An algorithmic stable coin with a circulation of 1 billion US dollars will appear in 2021.

• DeFi giant mergers will become a trend

Up to now, there are 5 DeFi agreements with a market value of 1 billion US dollars:

Chainlink, Aave, Synthetix, Uniswap, MakerDao, it should only be a matter of time before the doubles, potential players include Yearn, Sushi, Compound, the Graph, UMA and so on. The next step of the development goal of the 1 billion dollar unicorn agreement is to jump from 1 billion dollars to 10 billion dollars. The contribution of the growth of its own business to market value will always be linear, and mergers and acquisitions can contribute to exponential market value growth.

The Synthetix agreement included the implementation of mergers and acquisitions in the 2021 plan.

From another perspective, the treasury of these agreements is in the order of hundreds of millions of dollars. The money on Uniswap's account exceeds 500 million dollars. "The team is doing things" can not spend so much. It is better to invest more and merge a few projects. The so-called innovation and excellence are invested, and the currency circle is the same as the traditional financial circle.

When the founder of Uniswap asked the community how to invest in Treasury, one of the most popular suggestions in the community was to buy Sushi:

A series of actions taken by Andre Cronje after Year's establishment of the industry position, such as the acquisition and merger of Cream, Cover, Pickle, etc., after a number of projects have been fired, the actual ecological value has not yet appeared, but we can already see the clues:

Application layer: YFI's Stablecredit combined with Cream V2's unsecured lending to improve the efficiency of capital turnover, Alpha Finance focuses on the direction of derivatives trading, and Sushi focuses on the spot direction

Middle layer: Kp3r acts as the glue between the agreements to achieve overall coordination.

Asset layer: Pickle, Cream, Year aggregate assets and liquidity

The outline of the ecological layout has initially appeared, and a set of composable DeFi system has been formed within the AC ecology, which shows an important change in the industry: the focus of DeFi has shifted from improving the composability outside the ecology to the composability inside the ecology.

In addition, areas like Polkadot ecology are very hot due to the community, even if the bubble is obvious, the leading projects in it are still relatively deterministic opportunities in the long run.