Finance Redefined is Cointelegraph’s DeFi-focused newsletter that contextualizes the major events of the previous week. Subscribers receive a copy every Wednesday.
This is one of those weeks when it is difficult to find a central theme for this newsletter. There were no major scandals or releases, more like a slow grind with some projects launching new features, others announced their fancy round of investing, while some celebrity and their mother are still launching NFT. Snoop Dogg is the last one, I think?
I guess a good question is: “Why NFT and not DeFi?” The answer is money. NFTs are currently making stupendous amounts of money for their sellers, not unlike DeFi’s yield farming mania of the summer of 2020. In the crypto universe, money is always the answer.
SushiSwap releases V1 of the long-awaited Kashi release
NFTs will pass too, but like other past trends in crypto, this current surge may leave a much larger residue than we started with.
I would say that DeFi is in its “accumulation” stage right now, and that is why we are seeing a constant stream of launches and investments, with none of them actually affecting the ecosystem. Market conditions are not helping either, as we are still in a wavering stage that ultimately needs to resolve itself. Maybe we will resume the uptrend shortly, maybe not. I have come to understand that timing the market top is quite easy, the problem is that there are so many “caps” in a crypto year that it becomes difficult to differentiate a local correction from a global peak.
Sushi throws Kashi
One of the biggest developments this week was that SushiSwap finally rolled out BentoBox and Kashi, a margin lending platform. What sets it apart from platforms like Compound or Aave is its segregated approach to risk. Kashi uses separate vaults for each pair of loanable assets, which means, for example, that putting Ether in an ETH-SUSHI vault does not allow you to withdraw UNI from the ETH-UNI vault.
The segregated approach allows for greater risk tolerance. A spectacular crash in the value of some small, illiquid coin affects nothing but your own vault. This means that SushiSwap can create margin trading pairs for even the smallest projects without suffering from structural risks. With the upcoming Kashi V2, the act of creating loan vaults will even become permissionless, similar to creating AMM (automated market maker) pools.
DeFi Zapper and Aave Platforms Announce Polygon Sidechain Integrations
Margin trading is the lifeblood of DeFi. Margin traders who pay for the privilege of shorting their coins (or dollars) on Compound or Aave are the source of their “risk-free” return by supplying capital. Expanding margin trading to more currencies adds capacity for more capital by chasing those DeFi APYs across the market.
Aave, Polygon, and the importance of narratives
Aave and Zapper just announced an integration into Polygon, the layer two sidechain ecosystem formerly known as the Matic Network.
The choice is an obvious consequence of the high gas fees on Ethereum, which have been driving away many smaller users for quite some time. However, Aave’s fate is quite curious. Until the rebrand, Matic was a strange mix of competitor and addition to the Ethereum ecosystem. It ran a Plasma network, but most projects preferred to build on its smart contract-enabled “sidechain.”
Matic’s sidechain is actually a standalone blockchain that simply allows you to connect assets from Ethereum. To qualify as a proper sidechain, you should have used ETH or at least something like DAI to pay the transaction fees; instead use MATIC tokens. Under the very flexible definition of Matic, Polkadot, Near, Avalanche and Binance Smart Chain would be sidechains of Ethereum.
The xDai project integrates Chainlink oracles
But imagine the backlash if Aave announced that he would be moving to Near or BSC; it would look like nothing short of a betrayal of Ethereum. I have witnessed how projects like Balancer or Curve minimize their involvement with “the enemy” after agreeing to publish the news of an integration with an external platform. Although, to be fair, these other platforms were probably getting ahead of the announcement as well.