Ethereum brings DeFi back again, with Aave/Pendle/Ethena turning circular lending into a leverage amplifier. Compared to the DeFi Summer's on-chain stack based on ETH, the leverage rise curve supported by stablecoins like USDe is more gradual.
We might be entering a warm long cycle, and the examination of on-chain protocols will be divided into two parts: first, involving more asset types, with external fund liquidity being more abundant under the Federal Reserve's rate cut expectations; second, exploring the limit of leverage multiples, corresponding to the safe deleveraging process, i.e., how individuals can safely exit and how the bull market will end.
Crypto Six Protocols: Interaction of Ecosystem and Tokens
On-chain protocols and assets are numerous, but under the 80/20 rule, we only need to focus on parameters like TVL/trading volume/token price. More specifically, focus on the least number of individuals indispensable to the on-chain ecosystem, and then examine their relationships in the ecosystem network, taking into account individual importance, ecosystem connectivity, and the growth potential of new protocols.
In the DeFi TVL composition, Ethereum's DeFi TVL share exceeded 60% in July, and Aave's share of the Ethereum ecosystem TVL is also over 60%. This is the 20% in the 80/20 rule, and the remaining protocols must have a strong connection with these two to be included in the list of main passive beneficiaries.
With the flywheel of the three musketeers of circular lending starting up, the correlation between Ethereum, Aave, Pendle, and Ethena goes without saying. Adding Bitcoin, WBTC, ETH, and USDT/USDC are de facto DeFi base assets, but USDT/USDC and Lido are similar, possessing only asset attributes and basically no ecosystem value, with Plasma, Stablechain just beginning to compete.
To make a distinction, a protocol can have multiple values. For example, Bitcoin basically only has asset value, meaning everyone needs BTC, but no one knows how to utilize the Bitcoin ecosystem (not saying BTCFi is a scam, dog head for survival).
ETH/Ethereum, however, has dual value. People need both ETH and the Ethereum network, including EVM and its extensive DeFi stack and development facilities.
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- Pendle is targeting all divisible asset types, starting from fixed income and expanding the derivatives market beyond perpetual contracts, which is essentially the interest rate swap market in a broad sense
- Ethena is building the third pole of stablecoins from $ENA and $USDe, $USDtb through DeFi circular lending and treasury strategies, while USDT/USDC's basic use remains trading and payment, and USDe aims to become a risk-free asset in the DeFi field
- Aave is already the de facto lending infrastructure, closely tied to Ethereum
- Bitcoin and Ethereum represent the limits of the blockchain economic system, and their expansion is the basis for DeFi growth, which means how much of BTC's scale can be migrated to DeFi and how much room for growth DeFi still has
- Hyperliquid/HyperEVM is already closely integrated with existing DeFi giants, and although its TVL is far behind Solana, its growth prospects are larger, with Solana's story being about defeating the EVM system from a public chain perspective
Conclusion
The six crypto protocols are examined for their degree of interconnection, not to say that other protocols lack value, but that high collaborative proximity can exponentially increase fund freedom and utilization, thus benefiting all parties.
Of course, a loss would also be shared, which requires examining the subsequent development of DeFi anchor switching - from ETH to YBS. As a high-value asset, ETH is more aggressive in leverage, while YBS like USDe is naturally more price-stable (not value-stable), and the DeFi Lego built on it is more solid. Except in extreme de-anchoring situations, it can theoretically make the leverage and deleveraging curves more moderate.
Seats in the crypto pantheon are limited, and new chosen ones can only strive forward, make connections with existing deities, build the strongest protocol network, and thus earn their place.
