In the world of decentralized finance (DeFi), the only constant is change. Neptune, a member-directed decentralized autonomous organization (DAO), is a prime example of this evolution. Founded in March 2021, Neptune's original purpose was to invest in liquidity opportunities in the DeFi ecosystem, with a focus on yield generation. But the DeFi landscape is shifting, and Neptune is, too. 

No longer content with just earning governance tokens, Neptune is now looking to explore the next chapter of DeFi investing in:

• Zero knowledge proof (ZKP) infrastructure, and adjacent DeFi products and services

• Interchain ecosystems including Cosmos and IBC

• NFT lending and financialization (NFTFi)

• Shared security model projects and infrastructure 

• DeFi protocols that have stood the test of time

zkDeFi

With the memory of DeFi summer rapidly fading, and the cooler winds of a crypt bear market blowing in, there is a growing consensus from Neptune that DeFi is poised for a reset. The first wave of DeFi projects, which relied on comparatively simple smart contract designs and governance tokens will be replaced with more complicated systems that rely on cutting edge ZKP technology. For years, developers have been working tirelessly to find ways to create more complex DeFi systems that operate quickly, at low cost, without the need for a central authority.  The collapse of large CeFi players, like FTX, Celsius, Genesis, and BlockFi underscored the risks of opaque and centralized financial service providers when it comes to digital assets and, worse, created an unwarranted blowback on legitimate actors in the space.

With the rapid advancement of zk-rollups, state proofs, and associated zk-sequencers and processors, the DeFi landscape appears ready to shift, in ways that few could have predicted several years ago. The emerging cluster of ZKP tech will make it possible to process large amounts of data on a secondary chain (the rollup), which can then be verified on Ethereum or another blockchain, creating a new generation of DeFi applications, protocol and services with significantly increased transaction speeds, better privacy and security, and reduced costs.  

With ZKPs stitched into the fabric of Ethereum or other large blockchains, the next generation of DeFi will be more accessible to a wider audience and will power services that can better compete with legacy financial products and services in terms of speed, cost, and execution. What’s more, these services will be able to selectively disclose sensitive financial data, creating entirely novel financial products that remain peer-to-peer but with higher amounts of privacy and security. ZKP’s impact on DeFi won’t be limited to just marketplaces, but likely will be used to improve cross-chain transfers and create new ways for people to transact online. This is where the next generation of financial innovation will occur.

Interchain ecosystem, lead by Cosmos and IBC

Complementing advancements in ZKP technology are advancements in blockchain interoperability. Interoperability has long been a coveted goal for advocates of decentralization. The ability to seamlessly move assets and data across disparate chains has been seen as the holy grail, promising to unlock new levels of DeFi liquidity and composability. And now, with the maturation of the InterBlockchain Communications protocol, or IBC, that promise is rapidly becoming a reality.

At its core, IBC enables communication between different blockchains. This might seem like a simple concept, but it is a feat that has long eluded the blockchain world.  Cosmos, the internet of blockchains, has been at the forefront of this movement. Thanks to IBC, millions of transactions have already occurred on Cosmos DeFi apps. But IBC's reach extends far beyond Cosmos, connecting other blockchains, like Ethereum, Bitcoin, and Polkadot. Cosmos appears poised to unlock greater amounts of cross-chain liquidity, with an ecosystem of projects and tools helping to facilitate these types of transactions.

The implications of IBC are far-reaching. Imagine being able to move assets seamlessly between different blockchains, unlocking new investment opportunities and streamlining the DeFi landscape. And as more blockchains integrate with IBC, the potential for cross-chain liquidity and composability will only continue to grow. IBC sits at the center of these advances and innovative new products and services relying on this technology are–and continue to be a focus–of Neptune.

NFT Finance (NFTFi)

Neptune’s focus is not just on the first wave of DeFi. During the most recent crypto cycle, the digital asset space expanded beyond governance and other ERC-20 tokens. Robust markets emerged around media, communities, and culture, with NFTs turning from a sleepy corner of the crypto ecosystem to a growing force. Even as the macro market grew cloudier and many DeFi and CeFi platforms collapsed, NFTs continued to flourish.

Although the growth of NFTs may have slowed since the frenzied top in mid-2022, the number of NFTs continues to expand at a rapid pace, with certain collections and sets rapidly appreciating in value. As a result, some of these assets are now developing semi- or highly-liquid markets around them (e.g. Super Liquid NFTs from Flamingo), and they are beginning to serve as a store of value—as outlined in Storing Value in Digital Objects from Collab+Currency. This has made them attractive collateral for borrowing and lending services, prompting the need for robust valuation services and basic market functionality. For example, weekly NFT borrowing has expanded from roughly $7m in the fourth quarter of 2022 to over $20m in February, driven largely by peer-to-peer models like NFTFi and pool-to-peer models like BendDAO.

Neptune has been laser-focused on supporting and keeping a pulse on the growing NFTFi ecosystem. The market infrastructure around NFTs is likely to be different from DeFi, because many of these assets are non-fungible or semi-fungible, and they do not face the same listing constraints that opened up pathways for AMMs and other services found in DeFi. We’re also beginning to see experiments with other forms of assets, like physically-backed NFTs being developed by 4K Protocol. By bringing real world assets on-chain, there is an opportunity to build lending protocols to unlock liquidity for valuable, physical objects. Neptune is also exploring various ways to participate in the lending market for NFTs, as it will most likely become one of the main drivers of liquidity in NFTFi. The shape of adjacent financial services around NFTs is likely to be largely distinct from DeFi, and existing DeFi projects have struggled to port over innovations from DeFi into the NFT market. Though the NFT market presents unique challenges, it also represents a major area for innovation.

Shared Security

Beyond NFTs and ZKPs, Neptune has been focused on opportunities surrounding the shared security models for blockchains. As the composability of different decentralized networks improves, it will change the way dapps and decentralized networks are built and create new streams of tokens and revenue that will migrate into DeFi.  

Shared security has been a long-held goal of crypto-enthusiasts. During the early days of Bitcoin, developers dreamt up concepts related to merge mining, where a bitcoin validator could validate on other decentralized blockchains. However, these early concepts failed to gain traction, due primarily to security concerns.  

Likewise a number of blockchain initiatives have aimed to enable other decentralized networks and/or applications to piggyback on the security of a blockchain by making the core architecture of a blockchain less monolithic and more modular. While these efforts have been admirable, they have yet to gain widespread adoption.

That all appears ready to change, due to advances brought by projects like Eigenlayer and Celestia. Eigenlayer is a proof-of-stake validation protocol that seems to have solved earlier attempts at merge mining. Once launched, Eigenlayer will enable validators to provide security on multiple decentralized networks simultaneously through a new mechanic known as “restaking.”  

Restaking will be a boon for developers, since they will no longer have to waste time working to build up a decentralized network of validators.  Developers can just plug into the security of Ethereum, making it easier to launch and run decentralized networks. At the same time, it will create a boom for validators, who will be able to earn a stream of fees by providing security services to multiple networks simultaneously.  

Beyond Eigenlayer, the time and complexity of launching a decentralized network may be reduced by decoupling core functions of a blockchain through projects like Celestia, a modular consensus and data network built to enable anyone to easily deploy their own blockchain with minimal overhead. Celestia decouples the consensus and application execution layers of a blockchain, unlocking new possibilities for decentralized application builders.  

Decentralized networks built on top of Celestia do not need to rely on an honest majority assumption for state validity, meaning that they can interoperate with the highest security standards and build customized networks to fit a specific business or other function. Celestia will prove useful for rollups, alternative EVM environments, and dapp and data chains.  

These innovations, along with adjacent technology and middleware, could improve oracles, further increase interoperability, and improve composability and by implication liquidity. This will result in new DeFI applications and services, along with potential novel platforms that will improve blockchain applications and services. Application and services that Neptune is in a good position to identify and support.

Membership

The opportunity space in DeFI is changing, but Neptune and its members are charting its next course. The DAO possesses a wealth of knowledge and expertise that is unparalleled in the industry, with members who have long-standing histories in the world of  Ethereum. Now, Neptune’s members are diving deep into the ZK ecosystem, IBC, NFTFi, and more, to use their collective expertise to drive innovation and change in crypto. Neptune is also part of the Tribute Labs network of DAOs. Though all separate, each DAO within the network brings a new perspective to the Hive Mind, with Neptune taking the lead on DeFi.  

Neptune is an exclusive group and limited to 99 accredited and KYC members. If you have a passion for DeFI, and are interested in learning more send us a note at hello@neptunedao.xyz.