Inventory of recent developments in OG DeFi projects: Aave and MakerDAO's ambitions and prospects
Author: WOO Network
backgrounds
This round of meme coins is the main theme of the market, forDeFiAlso, there is a lack of interest in related “utility” tokens. Currently, the overall DeFi hedging volume in the market is about $182 billion, which is still about 40% away from reaching a new high of $300 billion at the end of 2021. This also indirectly proves that at a time when the market continues to rise, the DeFi sector has failed to keep up, but in the cryptocurrency market, DeFi is one of the few tracks that can generate real profits, and it is also the cornerstone of overall market liquidity. Although currency prices have not surged violently as emerging meme coins, old DeFi blue chips still occupy an important role in the market, such asAave、MakerDAOandUniswapThe three agreements are the top seven in terms of overall lock-up volume, and they are also the absolute leaders on this track.
How can they gain a foothold in the ever-iterating crypto market? What other major updates are there? Is there any potential for future growth? WOO X Research will answer the questions in this article.
Aave
The current situation
Aave started with EthLend in 2017, changed its name to Aave in 2018, deployed the initial version of the smart contract on Ethereum and launched Aave V1 in 2019, Aave V2 in late 2020, and Aave V3 in March 2022.
Aave V3 supports cross-chain lending, improves capital utilization through an efficient model, and supports segregated asset lending. This version can also set limits on loans and deposits, update the settlement mechanism, and provide a variety of reward tokens.
Currently, the TVL is 22 billion, making it the second-largest hedging project in the overall crypto market, after Lido, and supports 12 blockchains, providing a permissionless lending platform for everyone. It is also the preferred place for giant whales to cycle long/short using lending methods.
In addition to the lending function, Aave also launched its own stablecoin GHO in July 2023 to overcollateralize stablecoins. The stabilization mechanism is:
When the GHO price is higher than the peg, users can mint 1 GHO with $1 worth of collateral and then sell it for more than $1 to make a profit and lower the GHO price.
When the GHO price falls below the peg, users can buy 1 GHO on the market for less than $1 and then use it to pay off $1 of debt, which reduces the supply of GHO and increases the price.
Additionally, GHO uses Aave V3 assets as collateral in the Ethereum market. Additionally, Aave stakers (StkAave holders) have the following major benefits compared to ordinary people:
1. Loan interest rate discount: 1 stkAave per stake: discount on up to 100 GHO loans. The discounted loan interest rate will be lower than the standard interest rate. For example, the standard borrowing rate is 7.25%, while users who pledge AAVE enjoy an interest rate of 5.08%.
2. Reward Program: Users participating in staking can receive regular rewards through the Merit Program. The current reward rate is 3.58%.
Currently, GHO's market capitalization is $102 million, which is comparable to the market capitalization of crvUSD.
However, the good performance of the product is not equal to good currency price performance. The reason is that the price of the $Aave currency has nothing to do with the agreement itself. The token mainly empowers governance, and the trend has lagged far behind Ethereum in the past year.
Recent updates
On July 25, the official Aave team's governance representative for ACI initiated a proposal for Aave's new economic model, which usually has a high shutdown rate.
The main contents are:
Launch the Umbrella Atokens security module:
AToken defense mechanism: Previously, Aave's security module was that pledged assets would be sold to repay debts. This approach has now changed, and the Atoken category has been added to protect assets. In the event of a shortage, these tokens will be seized to destroy assets pledged by debt and will be destroyed rather than sold. This can improve the efficiency of the system.
Incentivize users to borrow: Approximately 80% of Aave users only deposit funds into the agreement and don't borrow money. They are mainly to obtain liquidity benefits, and they believe the Aave protocol is secure enough to store assets for the long term. To entice users to borrow money, provide more mid-term rewards to entice these users to participate in the Umbrella security module. Primarily, rewards are based on the respective ATokens, and these rewards are funded by the reserve factor of the relevant asset.
The Aave Repurchase Program works as follows:
Revenue generation: Aave V3 loans generate revenue, which goes into Aave Collector.
Revenue distribution: A portion of revenue is used to buy AAVE tokens and distributed to ecosystem reserves. Another portion of revenue is distributed to StkaTokens holders in the form of Atokens.
Safety guarantee: In the event of a shortage of funds, staked StkAave and StkGHO tokens will be seized and destroyed to repay debts. Anti-GHO provides additional security, generates StkGHO for stakers, and destroys stakers' debts when needed.
Reward distribution: Stakers (such as StkAave and StkGHO holders) receive rewards based on their contributions, which come from revenue generated by the agreement.
This way of working ensures the stability and security of the Aave protocol while providing ongoing rewards to users.
Subsequent effects
The biggest impact is that the performance of the agreement is officially linked to the Aave price. Whenever there is a borrowing act, the agreement automatically buys Aave in the secondary market, which undoubtedly injects a dose of strength into the long-term development of Aave's currency price.
For holders, with the launch of the Umbrella Atokens security module, its profit sharing mechanism can also increase the willingness to pledge, adding guarantees to the security of the agreement.
The current proposal is still in the early stages. The real impact on the currency price is not immediate, and many adjustments and discussions are still needed. However, it is foreseeable that if Tiane passes the agreement itself more secure, it will attract more capital into the agreement, and the real benefits generated will also drive the Aave currency price.
MakerDAO
The current situation
Created in 2014, in December 2017, the first MakerDAO official white paper was released, introducing the original Dai (then Sai) stablecoin system. Given that ETH was the only collateral asset accepted by the system at the time, the generated Dai was known as Single Collateral Dai (SCD) or Sai. The white paper also includes a plan to upgrade the system to support multiple collateral asset types other than ETH. That wish came true in November 2019.
Currently, Dai is the largest decentralized stablecoin, and the last round of the bear market also introduced US Treasury yields, making it one of RWA's representative projects. In terms of internal development, Spark Protocol and Summer.fi were also founded, both of which are decentralized lending platforms; the former is a subDAO where users can obtain DAI loans using assets such as ETH, stETH, and sDAI. The latter acts as a loan income aggregation platform, where users can amplify profits from existing assets.
It also invests abroad in Multis and Opolis, the former for Web3 enterprise on-chain solutions and the latter for DAO solutions.
It can be said that MakerDAO has diverse business horizons in the coin industry, and is actively seeking opportunities both internally and externally.
As a governance token, MKR can vote on projects including adjusting the DAI reserve ratio, increasing the pool of cryptocurrency funds that can be secured, and adjusting risk parameters.
In addition to governance tokens, Maker will also be used to pay a stable fee to redeem assets. When users want to be able to redeem the assets they originally pledged, they must and can only pay Maker as a stabilization fee. And this stabilization fee will be used to buy back Makers in the market and destroyed to maintain scarcity.
In terms of price, MKR's price performance in the past year was not much different compared to Ether due to factors such as enjoying RWA circuit dividends.
Recent updates
On May 16, MakerDAO founder Rune Christensen announced on Twitter that a major upgrade to the DAI stablecoin will be carried out because he believes it is currently impossible for DAI to be pegged to the US dollar on a large scale, maintain pure decentralization, and expand the scale at the same time.
However, Rune still wants mass adoption and maintaining decentralization. He expects to launch two stablecoins:
newStable: A stablecoin that complies with regulatory requirements
PureDAI: Fully Decentralized Stablecoin
newStable: A stablecoin that complies with regulatory requirements
Following Dai's development trajectory and focusing on practicality and adoption, newStable is also a decentralized stablecoin. By making its governance as flexible and transparent as possible, it uses decentralization as a means to achieve actual goals.
newStable will take over Dai's RWA and tradfi businesses, continue to be attached to Maker, and receive Endgame's token economy, growth focus, and governance features.
A freeze function has been added. In order to ensure that newStable can safely reach global scale, the freeze function will not be implemented at the time of release, but the token will be upgradeable so that it can be achieved later through governance voting. With newStable mass market adoption, this will make the use of large-scale RWA collateral more secure, stable, and reliable.
After the initial transition period (currently estimated to be at least 1 year) after the launch of newStable, DSR (DAI deposit interest rate) will begin to be phased out, gradually reducing the rate over time. Ultimately, yield will only be available on newStable.
PureDAI: Fully Decentralized Stablecoin
PureDAI will only use pure decentralized collateral, such as ETH and stETH, and will not include more centralized assets such as USDC.
Furthermore, PureDAI has a freely floating benchmark price (not necessarily against the US dollar) and is equipped with a maximally decentralized oracle system. This mechanism will never be modified by any organization, including MakerDAO.
To minimize PureDAI's legal compliance risk, PureDAI will release it in the form of a final, immutable contract. Once PureDAI is released, its contract will not need and cannot be further upgraded or changed, and is completely independent of Maker's control. Once the contract is launched, PureDAI will have no relationship with Maker.
Therefore, PureDAI's contract design is very important, and Rune believes it will take at least a few years to launch.
*NewStable, PureDai can be converted to and from Dai at any time
(2) On July 17, MakerDAO founder Rune Christensen stated on social platforms that MakerDAO launched the NewGovToken activation feature.
When Spark SubDAO launches, NewGovToken holders will be able to launch their NewGovToken to receive SPK rewards. NewGovToken launchers will receive 15% of all SPK token rewards
NewGovToken can be obtained by using MKR at 1:24,000, and Endgame will launch soon after launch. There is no lockdown period or additional risk when activating NewGovToken, and you can cancel the activation immediately at any time.
(3) On July 13, MakerDAO said on Thursday it plans to invest $1 billion of its reserves into tokenized US Treasury products. Top players in the field, including BlackRock's BUIDL, Superstate, and Ondo Finance, have stated that they will actively participate in the program. According to reports, MakerDAO's plan means that its reserve strategy will undergo major adjustments, in part to support its decentralized stablecoins, which are supported by a range of US government bonds and notes held by a range of partners under the chain.
Subsequent effects
From MakerDAO's recent development direction, it can be seen that it is eager to move in the direction of RWA, compliance, and mass adoption. The crypto market opened the door to traditional financial markets with Bitcoin spot ETFs at the beginning of the year, but now the adoption of an Ether ETF also proves that crypto assets are getting more and more attention and arousing the interest of traditional institutions.
As crypto regulation-friendly trends rise, it is foreseeable that the RWA circuit will remain a key hype track for 2024. MakerDAO is stealing RWA's narrative dividends and being an established Ethereum project, we can still look forward to in terms of currency price performance.
