Lessons learned from winter DeFi

There is a thought that has been shaking me for more than 2 decades about something that affects all Europeans directly and indirectly (although luckily for me less and less, thanks to the global environment where I move and work, which does not depend on an economy or a currency), since I cannot see from any angle that it will lead us to a good port and have the outcome expected by the rulers who implemented it. Given that each EU country follows different policies, it is understood that each one faces different economic results, so someone please tell me at this point where the EU stands. We cannot continue believing and giving a future to a system in which some countries are more prosperous than others sharing the same currency and monetary policy.

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 How is it possible that we have a European Central Bank and no member country is free of risk, since its only legal mandate is to stabilize the general price level by printing more money, instead of paying government debts. With these simple assumptions, and without wishing to go into more economic, political and social matters, it is clear to me that the EU is doomed to failure because it is only a monetary union and not an economic harmony among its member countries.


 Let’s get down to business. What really sheds a light among so much darkness, let’s start from the fact that DeFi’s winter started months before the market in general collapsed, where most DeFi tokens fell more than 90% from historical highs and liquidity pools were losing LTV and confidence at the same pace. Irrationally, fear also applies to the only sector that can generate interest rates, whether we are in a bull or bear market.

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 It is now during this DEFI winter that it is time to keep an eye on movements in other crypto sectors, because if in the short term the 2020/2021 bull market helped to accumulate billions of dollars in treasuries, which were managed in defi, in the medium term emerging Web3 categories (DAO, NFT, gaming, etc.) will do the same, expanding and sophisticating the DeFi market. Although it may not seem so from the current market context, a large number of new projects have treasuries in excess of $100 million and other older projects are starting to accumulate assets in excess of a billion dollars. To go against DeFi is to go against the success of cryptocurrencies in general, as it provides the ecosystem with a series of structured products, which facilitate capital management through deposits, loans or taking insurance, i.e. it creates connected market money with products in a direct way.

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Considering Crypto as an industry of extremes and mixed feelings, the continuous changes of direction serve different but connected narratives. In DEFI all this is further fuelled by the fact that a lot of opportunistic and unprofessional liquidity leaves pools and protocols when they cease to be minimally profitable or do not generate incentives to stay. On the one hand I give the reason to that fearful and inexperienced capital, given that in prolonged winters, the price of native assets of all DEFIs falls, and consequently profits are diluted and also fall, since they are paid to users largely through those native assets, and not in cryptocurrencies (DAI, USDC, USDT, …) how it should be.

Another trigger to blame for the loss of interest in DEFI over the last year was NFTs in all their versions (art, collectibles, games, metaverses, etc.), due to capturing a lot of interest and money in equal parts from not only the general public, but also for the first time celebrities in a public way through their social networks. The simplicity of the platforms to create and sell NFT’s helped many to try their luck with the money withdrawn from the DEFI in this new variant, which was born with the intention of buying an asset and not keep it as something valuable and representative that it is, but to speculate with its price and give the ball that would change your life, a deja vu.

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 Several crypto treasuries have already explored moving to DeFi, such as Synthetix, Pool Together or Notional, therefore the management of treasuries in DAO’s driven by the strength and speed that web 3 is adopting may be generating the new breeding ground for the use of more professional defi’s, since if both structures are successful, they will inevitably attract more assets and users to DeFi.

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 In my view the future of DeFi is to establish and promote the use of decentralized financial products capable of satisfying these large treasuries, and not the retail public, as the latter is attracted only by crazy 1,000% returns. Increasing the treasury of crypto projects and DAO’s, with a steady and sustainable pace in stable currency within the main L1 and L2, inevitably provides favorable headwinds for consumption within the network of structured products and credit. Structured products will undoubtedly grow as DeFi matures, as they can offer sustainable performance across a variety of assets, with the manager always choosing the one that is most interesting to them, either because of market conditions or treasury’s own objectives. Structured products generate sustainable returns always linked to risk (we mix volatility and usability to create the magic of returns), and these sustainable returns help to keep treasuries’ native tokens fully liquid, becoming more independent and financially free.

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 It all starts with a thesis on the table, what is yours?…