Summary

Current State and Challenges of the DeFi Market: After experiencing market shocks, DeFi is shedding the "second-system effect." Stablecoins are impacting traditional finance, and institutional DeFi is changing operational models. However, the industry still faces two major problems: the lack of a final lender of last resort for the on-chain economy, and a scarcity of truly original DeFi mechanisms.

Innovation Focuses on Core Areas: DeFi innovation revolves around DEXs, lending, and stablecoins, exemplified by Hyperliquid's Perp DEX and Pendle's yield strategies. However, synergistic effects also lead to liquidation risks and trust crises. Protocol centralization is evident, with giants like Aave dominating the market, marginalizing emerging protocols like Morpho.

Pricing and Competition Dynamics: Protocol market performance is a result of博弈. Established protocols like Aave are more robust, while the success of new protocols like Hyperliquid is an anomaly. Competition is intensifying, with growth bought through burning money. Profitability has become a key metric, favoring earlier protocols.

Asset Classification and Evolution: Assets are categorized by time and volatility into four quadrants: Rookie Zone, Altcoin Zone, Industry Leaders, and Death Zone. Most projects remain in the Altcoin Zone; breaking through the cycle is needed to reach the stable zone, like BTC and ETH. Sectors like Meme exist but struggle to persist.

Future Innovation Directions: Yield-bearing stablecoins could connect DEXs, lending, and stablecoins but require strong engineering capabilities. Agentics and Robotics might leverage blockchain's programmability to drive mass adoption. Liquidation mechanisms remain an industry challenge. The involvement of traditional law firms highlights the challenge to "Code is Law." BTC still plays the role of the ultimate清算者.

(Author: ZuYe)

Within a single month, the crypto market endured two major shocks on 10·11 and 11·03, leading many to question if DeFi still has a future. This moment provides an opportunity to examine the current structure and direction of the DeFi market.

The Macro Perspective: Shedding Baggage and Real Impact

From the broadest perspective, DeFi is rapidly shedding the "second-system effect." The impact of stablecoins on traditional banking and payment industries is becoming tangible, evidenced by the Fed's attempt to provide them with simplified master accounts. Institutional DeFi, represented by Aave/Morpho/Anchorage, is changing how traditional finance operates. Uniswap's plan to activate fees and the fierce Perp DEX war led by Hyperliquid continue unabated.

Lingering Challenges: The Two Dark Clouds

Immaturity lies in choosing to die nobly for an ideal. It is far too early to claim DeFi is fully mature and only needs mass adoption. Two dark clouds still loom in DeFi's sky:

1. Who is the final lender of last resort for the entire on-chain economy? J.P. Morgan facilitated the creation of the Fed; what mechanism should assume a similar role in DeFi?

2. Beyond the endless recursive combinations of existing DEX/Lending/Stablecoin products, how should truly original DeFi tracks or mechanisms emerge?

Price is the Outcome of博弈

However, as long as you are connected, I am by your side.

We are often blinded by the omnipresent. In the DeFi microcosm, all innovation to date revolves around DEX, Lending, and Stablecoins. This isn't to say BTC/ETH aren't mechanistic innovations, nor that RWA/DAT/tokenized stocks/insurance aren't asset innovations.

Referring to the six pillars of on-chain protocols, BTC and Bitcoin essentially require no other assets or protocols. The DeFi we discuss refers to projects on public chains/L2s like Ethereum/Solana. Considering the leverage cycle of currencies, stocks, and bonds, the cost of selling innovative assets is increasing. The entire industry is pursuing products with genuine profit capability, like Hyperliquid.

Since the end of DeFi Summer, DeFi innovation has been about continuously improving established products, existing assets, and accomplished facts. For instance, trading is divided into spot, perpetuals, and Meme, corresponding to AMM/CLOB/Bonding Curve from the DeFi Summer era. Even the highly innovative Hyperliquid bears traces of Serum.

At the most micro level, Pendle started with fixed-income products, embraced LSTs/LRTs, yield-bearing stablecoins like Ethena, while Euler and Fluid coincidentally chose to build their own lending + swap products. If users employ YBS like Ethena to set yield strategies, they could theoretically utilize DEX, Lending, and Stablecoin simultaneously across any chain, any protocol, any Vault.

While this synergy amplifies yields, it also "manufactures" numerous liquidation disasters and trust crises. Beyond this,遍地都是 No-Go Zones. Blockchains are born free, yet everywhere they are in chains.

Centralization Amidst Decentralization

Decentralization is a beautiful vision, but centralization is more efficient. More scarce than tracks is the centralization of protocols. Aave is undoubtedly vast and secure, but this also means fewer, newer choices for users, while later entrants like Morpho/Euler can only embrace potentially unsafe facilitators and "inferior" assets.

The unbanked drove the pursuit of stablecoins in the third world. One cannot say Aave's prudence caused Morpho's crisis, but the 'unAaved' have sparked the chase for subprime bonds, subprime protocols, and subprime facilitators among on-chain newcomers and the younger generation.

Innovation and Market Reality

Innovation can only happen among marginal groups where the cost of trial and error is extremely low. Survivors repeatedly challenge the established order; Aave V4 will also become more like its competitors rather than its own successful past.

The market prices and trading volumes of protocols and their tokens we see now are merely direct reflections of the current environment—in other words, the acknowledged result of repeated博弈. Their effectiveness for the future, or even their reference value, is debatable. Stablecoin chains and Stablechains are booming but stand little chance of challenging the adoption of Tron and Ethereum. Even challenging USDe, which has a much smaller scale than USDT, has already been declared a failure for xUSD.

The Crypto Gravity Well: Time and Revenue

The pricing system favors time; protocols that last longer tend to continue lasting. The success of Hyperliquid and USDe are deviant anomalies. How much market share Euler/Morpho/Fluid can capture from Aave is debatable, but replacing Aave is nearly impossible.

Competition is turning inward, burning money for growth.

As shown in the chart above, the x-axis represents the time since the protocol's token launch, and the y-axis represents the protocol's value capture ability. Compared to metrics like token price, trading volume, and TVL, profitability is arguably the most objective representative (Polymarket theoretically doesn't make money).

Theoretically, protocols established earlier have stronger, stable profitability. New entrants can only enter by constantly enhancing their token <> liquidity <> trading volume flywheel. Referring to Monad/Berachain/Story, failure is the more probable outcome.

Value as the Goal in Equilibrium

Believe in the power of the masses, but not in their wisdom.

DeFi is a movement. Compared to exchanges and TradFi, and within a generally宽松 background, it is indeed one of the best innovation cycles in history, potentially birthing new paradigms surpassing DeFi Summer.

Exchanges are being heavily hit. Hyperliquid's transparency, for the first time, demonstrated greater anti-fragility than Binance during the 11·03 event. Post 11·03, the momentum in lending and stablecoins has slowed but hasn't been disproven. There is a genuine need for subprime bonds and simple fund/bond/equity instruments—stablecoins.

Compared to market makers facing liquidity migration restrictions on CEXs during 10·11, on-chain trading—spot, perpetuals, alternative assets—are actively expanding scale. As long as problems can be engineered and combined, the possibility of them being completely solved exists.

Asset Classification: The Four Quadrants

Placing various new assets in the Rookie Zone, they are sensitive to both time and volatility, essentially belonging to short-term speculative assets. Only by transcending simple博弈 cycles and settling into stable holder bases and use cases can they enter the Altcoin Zone, where they become less time-sensitive but whose liquidity cannot withstand drastic market changes. Most projects will remain here.

Furthermore, the harder project teams try—with measures like ve(3,3), buybacks, burns, mergers, rebranding—they might still remain here. This can be seen as a slow climb; failure to advance means regression, and even advancing might lead to falling back.

The subsequent story is simple: successfully overcoming the trial leads to the stable zone, becoming so-called cycle-crossing assets like BTC and ETH, perhaps with half an SOL and USDT added. But the vast majority of assets will slowly die, becoming neither time-sensitive nor volatile.

Meme and DAT will exist long-term as sectors, but assets under them rarely have lasting opportunities. DOGE and XRP, as extreme outliers, represent rare examples of Meme and altcoin survivors.

Future Directions: Integration and New Frontiers

Treating protocols as asset innovations makes many problems easier to solve, meaning the entrepreneurial goal is a one-time sale of itself, not aiming to become a sustained, open system.

Future directions include:

* Spot DEX: Focused on mainstream assets (BTC/ETH) and whale position changes; retail trades altcoins less. The core is finding specific clients, not becoming permissionless public infrastructure.

* Perp DEX: Large funding rounds like Lighter's are often preludes to token launches. VCs are highly segmented.

* Meme: Emotion itself becomes a tradable asset but cannot form an industry-wide consensus.

* Platformed & Modularized Lending: A long-term trend where lending protocols can sell their liquidity, brand, and technology piecemeal—essentially a B2B2C model.

* DEX + Lending Integrated Development: Among the newest in the recursive combinations.

* Non-USD Stablecoins / Non-Pegged USD Stablecoins: Short-term focus on developed regions like Euro, Yen, Won, but long-term markets are in the third world.

Yield-bearing stablecoins best fit the asset form that connects DEX, Lending, and Stable but require massive engineering and integration capabilities.

Regarding innovative models beyond DEX/Lending/Stable, current samples are scarce. Stablecoin NeoBanks are still integrated models of the three. Prediction markets belong to the broad DEX type. More promising ideas might be Agentics and Robotics.

Conclusion: Making DeFi More DeFi

The internet brought scalable replication, differing vastly from the industrial era's production models, but long lacked a corresponding economic model. The advertising economy comes at the cost of user experience. Agentics, compared to just putting LLMs on-chain, fits blockchain's technical特性 better—the极致programmability enabling 24/7 trading efficiency.

With gradually cheaper Gas Fees, years of TPS improvements, and ZK development, mass adoption of blockchain might occur in a replication economy that doesn't require human participation.

Robotics' short-term integration with cryptocurrency isn't particularly interesting. As long as even leading companies haven't moved beyond gimmicks and educational tools, Robotics in Web3 will struggle to land practically. The long term? Only heaven knows.

Robotics is too far away;清算is urgent.

The composite清算mechanisms of DEX+Lending are proactive constructions against DeFi crises. Yet, they couldn't stop the spread of the 11·03 crisis. The most effective measure was Aave's preemptive refusal. Looking across the industry, how to handle清算and restore markets has become the biggest challenge.

In 2022, after the 3AC incident, SBF actively acquired and restructured involved protocols. Yet, within half a year, FTX was also taken over by traditional law firms. Following the Stream xUSD collapse, it was immediately handed over to a law firm.

"Code is Law" is fast becoming "Lawyer is Coder."

Before SBF and the law firms, BTC long served as the ultimate清算者, albeit requiring a long time to rebuild trust in the on-chain economy. But at least, we still have BTC.

Summary

Current State and Challenges of the DeFi Market: After experiencing market shocks, DeFi is shedding the "second-system effect." Stablecoins are impacting traditional finance, and institutional DeFi is changing operational models. However, the industry still faces two major problems: the lack of a final lender of last resort for the on-chain economy, and a scarcity of truly original DeFi mechanisms.

Innovation Focuses on Core Areas: DeFi innovation revolves around DEXs, lending, and stablecoins, exemplified by Hyperliquid's Perp DEX and Pendle's yield strategies. However, synergistic effects also lead to liquidation risks and trust crises. Protocol centralization is evident, with giants like Aave dominating the market, marginalizing emerging protocols like Morpho.

Pricing and Competition Dynamics: Protocol market performance is a result of博弈. Established protocols like Aave are more robust, while the success of new protocols like Hyperliquid is an anomaly. Competition is intensifying, with growth bought through burning money. Profitability has become a key metric, favoring earlier protocols.

Asset Classification and Evolution: Assets are categorized by time and volatility into four quadrants: Rookie Zone, Altcoin Zone, Industry Leaders, and Death Zone. Most projects remain in the Altcoin Zone; breaking through the cycle is needed to reach the stable zone, like BTC and ETH. Sectors like Meme exist but struggle to persist.

Future Innovation Directions: Yield-bearing stablecoins could connect DEXs, lending, and stablecoins but require strong engineering capabilities. Agentics and Robotics might leverage blockchain's programmability to drive mass adoption. Liquidation mechanisms remain an industry challenge. The involvement of traditional law firms highlights the challenge to "Code is Law." BTC still plays the role of the ultimate清算者.

(Author: ZuYe)

Within a single month, the crypto market endured two major shocks on 10·11 and 11·03, leading many to question if DeFi still has a future. This moment provides an opportunity to examine the current structure and direction of the DeFi market.

The Macro Perspective: Shedding Baggage and Real Impact

From the broadest perspective, DeFi is rapidly shedding the "second-system effect." The impact of stablecoins on traditional banking and payment industries is becoming tangible, evidenced by the Fed's attempt to provide them with simplified master accounts. Institutional DeFi, represented by Aave/Morpho/Anchorage, is changing how traditional finance operates. Uniswap's plan to activate fees and the fierce Perp DEX war led by Hyperliquid continue unabated.

Lingering Challenges: The Two Dark Clouds

Immaturity lies in choosing to die nobly for an ideal. It is far too early to claim DeFi is fully mature and only needs mass adoption. Two dark clouds still loom in DeFi's sky:

1. Who is the final lender of last resort for the entire on-chain economy? J.P. Morgan facilitated the creation of the Fed; what mechanism should assume a similar role in DeFi?

2. Beyond the endless recursive combinations of existing DEX/Lending/Stablecoin products, how should truly original DeFi tracks or mechanisms emerge?

Price is the Outcome of博弈

However, as long as you are connected, I am by your side.

We are often blinded by the omnipresent. In the DeFi microcosm, all innovation to date revolves around DEX, Lending, and Stablecoins. This isn't to say BTC/ETH aren't mechanistic innovations, nor that RWA/DAT/tokenized stocks/insurance aren't asset innovations.

Referring to the six pillars of on-chain protocols, BTC and Bitcoin essentially require no other assets or protocols. The DeFi we discuss refers to projects on public chains/L2s like Ethereum/Solana. Considering the leverage cycle of currencies, stocks, and bonds, the cost of selling innovative assets is increasing. The entire industry is pursuing products with genuine profit capability, like Hyperliquid.

Since the end of DeFi Summer, DeFi innovation has been about continuously improving established products, existing assets, and accomplished facts. For instance, trading is divided into spot, perpetuals, and Meme, corresponding to AMM/CLOB/Bonding Curve from the DeFi Summer era. Even the highly innovative Hyperliquid bears traces of Serum.

At the most micro level, Pendle started with fixed-income products, embraced LSTs/LRTs, yield-bearing stablecoins like Ethena, while Euler and Fluid coincidentally chose to build their own lending + swap products. If users employ YBS like Ethena to set yield strategies, they could theoretically utilize DEX, Lending, and Stablecoin simultaneously across any chain, any protocol, any Vault.

While this synergy amplifies yields, it also "manufactures" numerous liquidation disasters and trust crises. Beyond this,遍地都是 No-Go Zones. Blockchains are born free, yet everywhere they are in chains.

Centralization Amidst Decentralization

Decentralization is a beautiful vision, but centralization is more efficient. More scarce than tracks is the centralization of protocols. Aave is undoubtedly vast and secure, but this also means fewer, newer choices for users, while later entrants like Morpho/Euler can only embrace potentially unsafe facilitators and "inferior" assets.

The unbanked drove the pursuit of stablecoins in the third world. One cannot say Aave's prudence caused Morpho's crisis, but the 'unAaved' have sparked the chase for subprime bonds, subprime protocols, and subprime facilitators among on-chain newcomers and the younger generation.

Innovation and Market Reality

Innovation can only happen among marginal groups where the cost of trial and error is extremely low. Survivors repeatedly challenge the established order; Aave V4 will also become more like its competitors rather than its own successful past.

The market prices and trading volumes of protocols and their tokens we see now are merely direct reflections of the current environment—in other words, the acknowledged result of repeated博弈. Their effectiveness for the future, or even their reference value, is debatable. Stablecoin chains and Stablechains are booming but stand little chance of challenging the adoption of Tron and Ethereum. Even challenging USDe, which has a much smaller scale than USDT, has already been declared a failure for xUSD.

The Crypto Gravity Well: Time and Revenue

The pricing system favors time; protocols that last longer tend to continue lasting. The success of Hyperliquid and USDe are deviant anomalies. How much market share Euler/Morpho/Fluid can capture from Aave is debatable, but replacing Aave is nearly impossible.

Competition is turning inward, burning money for growth.

As shown in the chart above, the x-axis represents the time since the protocol's token launch, and the y-axis represents the protocol's value capture ability. Compared to metrics like token price, trading volume, and TVL, profitability is arguably the most objective representative (Polymarket theoretically doesn't make money).

Theoretically, protocols established earlier have stronger, stable profitability. New entrants can only enter by constantly enhancing their token <> liquidity <> trading volume flywheel. Referring to Monad/Berachain/Story, failure is the more probable outcome.

Value as the Goal in Equilibrium

Believe in the power of the masses, but not in their wisdom.

DeFi is a movement. Compared to exchanges and TradFi, and within a generally宽松 background, it is indeed one of the best innovation cycles in history, potentially birthing new paradigms surpassing DeFi Summer.

Exchanges are being heavily hit. Hyperliquid's transparency, for the first time, demonstrated greater anti-fragility than Binance during the 11·03 event. Post 11·03, the momentum in lending and stablecoins has slowed but hasn't been disproven. There is a genuine need for subprime bonds and simple fund/bond/equity instruments—stablecoins.

Compared to market makers facing liquidity migration restrictions on CEXs during 10·11, on-chain trading—spot, perpetuals, alternative assets—are actively expanding scale. As long as problems can be engineered and combined, the possibility of them being completely solved exists.

Asset Classification: The Four Quadrants

Placing various new assets in the Rookie Zone, they are sensitive to both time and volatility, essentially belonging to short-term speculative assets. Only by transcending simple博弈 cycles and settling into stable holder bases and use cases can they enter the Altcoin Zone, where they become less time-sensitive but whose liquidity cannot withstand drastic market changes. Most projects will remain here.

Furthermore, the harder project teams try—with measures like ve(3,3), buybacks, burns, mergers, rebranding—they might still remain here. This can be seen as a slow climb; failure to advance means regression, and even advancing might lead to falling back.

The subsequent story is simple: successfully overcoming the trial leads to the stable zone, becoming so-called cycle-crossing assets like BTC and ETH, perhaps with half an SOL and USDT added. But the vast majority of assets will slowly die, becoming neither time-sensitive nor volatile.

Meme and DAT will exist long-term as sectors, but assets under them rarely have lasting opportunities. DOGE and XRP, as extreme outliers, represent rare examples of Meme and altcoin survivors.

Future Directions: Integration and New Frontiers

Treating protocols as asset innovations makes many problems easier to solve, meaning the entrepreneurial goal is a one-time sale of itself, not aiming to become a sustained, open system.

Future directions include:

* Spot DEX: Focused on mainstream assets (BTC/ETH) and whale position changes; retail trades altcoins less. The core is finding specific clients, not becoming permissionless public infrastructure.

* Perp DEX: Large funding rounds like Lighter's are often preludes to token launches. VCs are highly segmented.

* Meme: Emotion itself becomes a tradable asset but cannot form an industry-wide consensus.

* Platformed & Modularized Lending: A long-term trend where lending protocols can sell their liquidity, brand, and technology piecemeal—essentially a B2B2C model.

* DEX + Lending Integrated Development: Among the newest in the recursive combinations.

* Non-USD Stablecoins / Non-Pegged USD Stablecoins: Short-term focus on developed regions like Euro, Yen, Won, but long-term markets are in the third world.

Yield-bearing stablecoins best fit the asset form that connects DEX, Lending, and Stable but require massive engineering and integration capabilities.

Regarding innovative models beyond DEX/Lending/Stable, current samples are scarce. Stablecoin NeoBanks are still integrated models of the three. Prediction markets belong to the broad DEX type. More promising ideas might be Agentics and Robotics.

Conclusion: Making DeFi More DeFi

The internet brought scalable replication, differing vastly from the industrial era's production models, but long lacked a corresponding economic model. The advertising economy comes at the cost of user experience. Agentics, compared to just putting LLMs on-chain, fits blockchain's technical特性 better—the极致programmability enabling 24/7 trading efficiency.

With gradually cheaper Gas Fees, years of TPS improvements, and ZK development, mass adoption of blockchain might occur in a replication economy that doesn't require human participation.

Robotics' short-term integration with cryptocurrency isn't particularly interesting. As long as even leading companies haven't moved beyond gimmicks and educational tools, Robotics in Web3 will struggle to land practically. The long term? Only heaven knows.

Robotics is too far away;清算is urgent.

The composite清算mechanisms of DEX+Lending are proactive constructions against DeFi crises. Yet, they couldn't stop the spread of the 11·03 crisis. The most effective measure was Aave's preemptive refusal. Looking across the industry, how to handle清算and restore markets has become the biggest challenge.

In 2022, after the 3AC incident, SBF actively acquired and restructured involved protocols. Yet, within half a year, FTX was also taken over by traditional law firms. Following the Stream xUSD collapse, it was immediately handed over to a law firm.

"Code is Law" is fast becoming "Lawyer is Coder."

Before SBF and the law firms, BTC long served as the ultimate清算者, albeit requiring a long time to rebuild trust in the on-chain economy. But at least, we still have BTC.