Break DeFi income trap, take Synthetix “atomic swap” as an example.

Most market participants believe that the high growth cycle of DEFI is over, and when people start to question everything they believed during the bull market, it is time to revisit the profit trap, because usually when the trend collapses, the bubble disappears. The failure of Luna means that yield farming has lost its narrative promise.

DEFI: produce alpha on L1 beta

The risk-reward ratio of the underlying layer 1 token is better than any application based on it, at least for now. Over the past two years, blue-chip DeFi tokens have experienced a similar pullback to L1 when the market fell, but with less upside potential when the industry took off.

It’s easy to understand. So far, much of the business around DeFi has been because it brings “users” and “liquidity” to L1. However, when users come to L1, they are most often attracted by short-term incentives like liquidity mining, and then, when returns are lower, they move to more aggressive public chains and gain access to other L1 sites higher rewards.

In this relationship, L1 cannot provide added value to DeFi. DEFI exists to keep L1 in profile and expand TVL and its user base, then pretend L1 has a lot of applications. However, many DEFI projects themselves do not benefit from being built on different public blockchains (I am not implying the Boca ecosystem).

Therefore, these DEFI projects lack the intrinsic motivation to maintain their market value. Not only are their growth highly dependent on L1 scaling, but their upward mobility is also limited by the ecosystem to which they belong. This pernicious growth model shows that the old model of attracting users to DEFI through liquidity incentives and airdrops no longer works.

Serve the community, not yourself

There has also been real innovation in DEFI over the past cycle, the progress of which cannot be quantified in token prices. For example, Uniswap V 3’s groundbreaking centralized mobile functionality opens up a huge design space for new applications. The increased demand for block space has inspired many block space financial protocols such as Flashbots and Alkimiya.

Protocols like Lido, Ribbon, and DYDX all have multiple upcoming product or industry updates that will further fuel their growth. When the Ethereum merger is complete, Lido’s TVL will get a big boost. Ribbon offers a range of structured products that are well suited for the compositional environment of chains, but have not yet been fully explored. There is still a huge untapped market for DYDX and other derivatives protocols to capture.

The fact that NFTs and Web3 are attracting new users and connecting them to DeFi in the second half of this cycle will be the narrative foundation for the next cycle. Breaking through the middle-income trap and reaching the last mile of high DeFi income is arduous, and ultimately many transactions face three top priorities: first, to accelerate product development and user growth; second, to ensure better provision of financial services to make DeFi growth inclusive The third is to ensure the sustainability of corporate incentives.

The role of the community in this regard is critical, but the community alone cannot meet these enormous challenges. Partnering with outside capital, other WEB3 protocols and other Daos can address these challenges.

Synthetix takes off

Synthetix, codenamed SNX, saw a spike in fees and transaction volume generated by the protocol following Synthetix Improvement Proposal 120, removing buffers between synthetic asset transactions, known as Synths, and increasing transaction speeds. SNX’s daily protocol fees increased more than 19-fold last month to $718,500, making it the fourth-highest-grossing blockchain protocol. Trading volume was $124 billion, more than 40 times the $3 million a month earlier, according to Dune Analytics.

According to Synthetix, most of the trading volume comes from decentralized exchange aggregator 1inch. 1inch, which leads all Synth initiatives, processed $769 million in deals over the past week. The SIP-120 proposal is key to the protocol’s recent momentum. The new instant trading feature is called Atomic Exchange.

A few months ago, SIP-120 achieved atomic execution by using UNISWAP as a secondary price predictor. After further improving execution efficiency and coordinating with integrators, 1inch started routing orders through Curve + Synthetix, so the deal took off. Synthetix also added perpetual futures in March.

In this regard, the role of development partners becomes crucial. Through financial and technical assistance and knowledge sharing, Synthetix’s development partners take an open and collaborative approach to solving critical middle-income challenges that the community cannot address alone. These protocols need to incorporate more transparent community assessment methods in bear markets, including transparency, user engagement and feedback, and community responsiveness, for stronger growth. The key to accelerating development is not only to provide funding or technology, but also that these DeFi protocols can work together to push and support reforms through the last mile community.

Walk the last mile together

First, a more open community can attract more user investment and growth. There is compelling evidence that higher fiscal transparency has better credit and lower borrowing costs. Maker has a transformative promise in this space. This will incentivize users to visualize where their funds are going and empower them to monitor the use of public funds. Second, transparency and user engagement can improve service delivery and make growth inclusive.

User engagement and budget monitoring lead to better resource allocation and service delivery. Another important area where an open community approach can help is DeFi infrastructure. This is the key to the last mile of the middle-income agreement. Open communities can promote the sustainability of the protocol.

Broader evidence suggests a positive relationship between better governance and higher protocol revenue. Therefore, there is a positive correlation between the increase in the per capita income of users and the increase in the protocol governance income. As revenue increases, users will in turn demand better governance. These agreements demonstrate that an open and collaborative approach can help middle-income DEFI projects accelerate their last-mile journeys and respond to user expectations.

While many DeFi yield tokens are now at all-time lows, the market is in a price reversal cycle. Since the beginning of the cycle, DEFI has remained on track to generate the greatest possible return on project investment; blue-chip DEFI projects have the ability to maintain commercial value through the end of the price growth cycle.