"Is it still a good time to invest in DeFi projects? "How big is the bubble?" "What should we pay attention to when tapping into the field? "
On August 24th, Satoshi's Angels, CoinW, CollinStar Financial Group, and Miniswap jointly held an AMA (Ask Me Anything) titled "Investors, CEX, DEX under the Wave of DeFi". CoinW CEO Sebastian Zhao, Chief Scientific Advisor of Miniswap Yu Jiangshan, and CollinStar founder Xu Zijing answered the questions from the audience one by one. Here is the full recap of the AMA.
(You can also read this article in Japanese here)
Cindy Wang (Satoshi's Angels): Please make a brief introduction of yourselves.
Xu Zijing: Hello, everyone. I am Xu Zijing, founder of CollinStar Financial Group and the project leader of Hcash.
Sebastian Zhao: Early Bitcoiner and famous blockchain angel investor, now CEO of CoinW.
Yu Jiangshan: Hello everyone, I am Yu Jiangshan, chief scientific advisor of Miniswap. I am the research director of the Blockchain Research Center at Monash University, Australia.
Cindy Wang: Timing is everything when investing. As a well-known blockchain investor, why did you choose to invest in Miniswap as your strategy to step into the DEX ecosystem in advance? What stage do you think the DeFi market is in?
Xu Zijing : I believe DeFi is now in its early stage, and it must go through multiple downside corrections to “scare away” retail investors and then it will pump.
The market cap of DeFi has been rising over the years. The total locked-up value in DeFi has increased from $100 million to $1.85 billion since January 2018.
Though DeFi gained great traction recently, it has developed over a long course. It draws attention when it's grown into something. While other projects brag before they deliver any value.
In addition, the upcoming Ethereum 2.0 will bring new momentum to the DeFi ecosystem. Performance improvement of the Ethereum system is a must-be for DeFi to gain more awareness. Besides the current sectors of asset, lending and liquidity, new tracks will rise in the DeFi field, such as a new DeFi sector to serve Ethereum's own staking function.
But I must warn you that once a concept becomes popular, imitators will come. They simply copy the mode and code of successful projects. The same thing will happen in DeFi.
Cindy Wang: Will the DeFi bubble burst immediately?
I think there will be a deep correction soon, but it will not burst for now. Because some large institutions have not found a chance to buy. The value of Defi will long exist after short-term speculation fade away. Part of speculators will be converted into long-term users. The Defi track will continue to flourish.
Our newly invested Miniswap belongs to DeFi's infrastructure, which has few bubble. It can be seen as our strategy to invest in DEX in advance. I think that only local decentralized exchanges can occupy the domestic market.
Cindy Wang: DeFi is not a new concept in the crypto space. And CoinW listed DeFi tokens before. Why has the concept of DeFi only become popular recently?
Sebastian Zhao: It's partly luck and partly for its decentralization nature that makes DeFi superior.
1. Application value. DeFi aims to solve the drawbacks of traditional finance, by deemphasizing centralized organizations, reducing the cost of centralized institutions, and eliminating regional financial regulatory restrictions, etc.
2. Low entry threshold and high interest rate. Operations such as collateral and lending is easy to crypto users, and the blockchain network offers better transparency.
3. Market environment. Demands for financial services have been increasing since the extreme market oscillations on March 12.
4. Speculation needs. DeFi has real applications, has market potential, it's understandable why capital would rush to this market.
In addition,"lending mining" created by COMP encouraged investors to provide liquidity.
Cindy Wang: Some concepts in DeFi such as "transaction means mining" are not new. But projects like Fcoin failed to sustain. What problems do these previous projects have?
Yu Jiangshan: There are two models. The first one is "trading is mining". FCoin proposed the concept of "transaction is mining" in 2018. Transaction fees will be returned to traders in the form of the platform token, which gained huge traffic but cannot be sustainable. Because users create fake transactions to obtain benefits. Once all tokens are minted, the system will lose its vitality. Besides, FCoin token itself has no internal value.
The second one is "liquidity mining” that rewards liquidity providers instead of traders. It will eventually devastate the platform. Let's take Uniswap as an example. Uniswap currently has a better user experience, but lacks supervision, so it will gradually be caught up to by competitors. As Uniswap does not have an incentive mechanism to traders, traders will turn to other platforms. This directly leads to the decrease of transaction volume, which in turn affects the gains of liquidity providers. Therefore, liquidity providers will also switch to other platforms, which will affect the sustainability of the entire platform and even lead to the disappearance of the entire platform ecosystem.
Cindy Wang: How does Miniswap attract liquidity providers? And how do they motivate traders?
Yu Jiangshan: This should be considered in two ways. First is the inherent value of the token itself. Miniswap's tokens(Mini) will be used for community governance, the design of price oracles, and cross-chain transactions. These give Mini irreplaceable value.
Second is a sustainable mining model. Miniswap uses a hybrid mining model to empower the ecosystem with sustainability. In fact, for a trading platform, initial liquidity is relatively easy to provide, but it is difficult to attract users to trade. Therefore, Miniswap will return transaction fees to traders through liquid mining in the form of tokens. To prevent fake traffic and ensure sustainability, Miniswap currently has an upper limit for daily mining. Then it will gradually reduce the amount of refunded fees. But traders will still enjoy relatively low fees. This way we can achieve a cold start and increase transaction volume.
In order to incentivize liquidity providers, Miniswap now distributes all transaction fees to liquidity providers. As trading volume increases, so does the dividend. It will then attract more liquidity providers.
Cindy Wang: Recently, the Defi market has gone “crazy” to many. The price of YFI actually exceeded Bitcoin...The market cap of Curve surpassed Ethereum as soon as it was launched...Many people think that the top 10 coins are about to be replaced. What do you think?
Sebastian Zhao: Strictly speaking, it's Compound and Balancer that triggered the DeFi market, and then LTC, ETH and other mainstream coins started to rise. Capitals flew back to Bitcoin and the price reached $12,100. Then Link triggered the second wave of Defi. The failure of YAM caused panic and investors put their money back into mainstream coins. ETH then gained traction.
You may have noticed that when Defi projects rise, mainstream coins values decrease and vice versa.
As long as either party does not lose their legs, the two markets can grow well.
Cindy Wang: Some exchanges seize opportunities whenever a hot concept appears. For example, CoinEx became successful in 2017 because of BCH. And the “9.4 event” made Binance a new “Big three” exchange in China. What is CoinW doing to seize the opportunity of Defi?
Sebastian Zhao: CoinW was the first to launch the DeFi trade zone this July. We took the lead to list such projects as UNC, FYI, and FYII that have increased ten times in terms of price.
Recently, CoinW launched a package purchase service for users who have no time to get a certain share of Defi tokens before they get listed on exchanges. These tokens we chose increased by an average of 628.9%, among which Mini increased by 5110%.
Cindy Wang: 1inch released its token distribution mechanisms last week and many investors got disappointed as only 2% of 1inch token will be allocated to the community. How is the dividend mechanism of Miniswap's liquidity pool distributed?
Yu Jiangshan: Here is how it works. If the transaction fee is X Ether, then twice of the fees worth of Mini will be mined. Besides, 100% of the transaction fee will be returned to the trader in the form of Mini and the same will be distributed to the liquidity provider as well.
This transaction fee will be injected into the liquid mining pool in exchange for Mini. 50% of the obtained mini tokens will be distributed to all mini holders and another half will be burned. By doing so, traders, liquidity providers, and community token holders can all be incentivized to join the ecosystem.
Cindy Wang: Justin Sun recently claimed that many projects on Justswap have nothing to do with him as Justswap is permissionless in token listing. Are there any restrictions for Miniswap's listing services? How do you embrace technological innovation and protect the interests of investors at the same time?
Yu Jiangshan: I mentioned that Mini has inherent values, one of which is community governance that is already to be released. One of the most important steps is to create a listing management committee. We will adopt a distributed and transparent management method to ensure the quality of listing. There are also incentives to manage, supervise, and audit the listing committee itself. The quality of listing is closely related to whether the listing committee will receive rewards or punishments. We will disclose more details soon.
Cindy Wang: Liquidity mining is quite complicated. You need to exchange stablecoins and install plug-in wallets. And extreme market oscillations could have your collateral cleared. In contrast, centralized exchanges are easier to use for centralized exchanges. How will CEX and DEX, such as Miniswap divide the trading market?
Sebastian Zhao: I suppose in the future DEX such as Miniswap will occupy a large market share, but CEX will remain dominant. The number of decentralized trading platforms (DEX) has risen rapidly. Taking Uniswap as an example, it offers liquidity for tokens of small market cap and saves listing fees.
Compared with Uniswap, it costs little to obtain Mini tokens. Miniswap adopts an innovative dividend mechanism that combines "trans-fee mining” with "liquidity mining" to promote liquidity premium.
Compared with CEX, Miniswap is in line with the spirit of blockchain that helps it win more support in the long run. But CEX does a better job in compliance. It can effectively combat digital currency crimes with KYC and AML.
Cindy Wang: Should ordinary crypto users embrace the bubble, or stay away with it? Why did CollinStar and CoinW choose Miniswap?
Sebastian Zhao: Dex like UniSwap, Balancer and Bancor have great traffic with daily transaction volume reaching 300 million dollars and 20,000 users. the number of users has exceeded 20,000, and the number of transfers has reached 100,000. These data have doubled in a few months. On August 7th, UniSwap announced that it had raised 11million dollars in its A round investment. Decentralized exchanges already serve an important role in the digital currency market that cannot be ignored.
As long as the profit and users increase, exchanges will definitely grow, and then the price of the platform token will follow.
There are many decentralized exchange projects. We invested in Mini because we found that MiniSwap has all the features that Uniswap has and even surpasses Uniswap in many ways.
UniSwap has many innovations, but it is overvalued. It's not as sustainable as Miniswap.
As one of the few DEX led by a Chinese team, Miniswap has its own platform token Mini, its own white paper, websites and roadmaps. The ETH and USDT trading pairs have reached $950,000 in liquidity pool, and it enjoys a daily growth rate of 10%. It currently ranks 58th at UniSwap.
Cindy Wang: As an ordinary investor, should you invest in DeFi? When it comes to investment, always remember that there are no free lunches.
Please do your homework before stepping into Defi. Don't get trapped by high profits.
<Questions from the Audience>
1. It has been almost four years since CoinW was created. What makes CoinW differ from other exchanges?
Sebastian Zhao: At CoinW, we put users first. In the past few years, exchange has witnessed multiple bulls and bears. Some exchanges got hacked, some pretend to be thefted. We always make sure users’ assets are safe with us.
2. Does CoinW plan to build its own DEX?
Sebastian Zhao: Both CEX and DEX have their own value. DEX provides users with better transparency. CEX provides a better experience and has more advantages in terms of compliance. In particular, we will apply for licenses in accordance with laws and regulations of various countries, and do KYC and anti-money laundering. The brand of CoinW will insist in CEX. We will inform the community if we plan to do DEX in the future.
3. Are high transaction fees a bottleneck restricting the development of Defi projects on ETH?
Yu Jiangshan: At present, smart contracts on Ethereum charge based on the complexity of operations and the speed of transaction confirmation. It is also a problem that Miniswap has been working on. We will work harder to reduce transaction fees for users on Miniswap.
4. Will deposits and withdrawals be frozen on CoinW ?
Sebastian Zhao: As a user-centered exchange, we do everything to ensure the safety of users' assets. Their assets will not be frozen.
We are also the first exchange to compensate users if their activities such as deposit and withdrawal get delayed.
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