DeFi New Revolution: Why Are Top Protocols Issuing Stablecoins?

Question

In the world of encryption, DeFi (Decentralized Finance) is undergoing a profound transformation in business models. As more and more DeFi projects start to issue coin, project valuation has become the focal point of attention, and valuation must inevitably be based on the underlying business model.

Why are DeFi giants issuing stablecoins?

Recently, you may have noticed a phenomenon: almost all major DeFi protocols have started issuing their own stablecoins. From Aave's GHO to Curve's crvUSD, these established projects have coincidentally chosen the same path. What is the secret behind this?

The answer lies in the evolution of the DeFi business model.

Traditional Banks vs DeFi: Fundamental Differences in Competitive Dimensions

The competition in traditional banking is relatively simple—mainly relying on regulatory licenses and user switching costs to build a moat. Banks need regulatory licenses to operate, which naturally limits the number of competitors; at the same time, the cost for users to switch banks is high, including the hassle of fund migration and various procedures.

But DeFi is completely different. It's like competing on the prairie, with no walls and no moats. All the code is open source; today you create an innovative product, and tomorrow someone can copy and paste it.

DeFi protocols need to compete on ten dimensions: liquidity, trust, returns, transaction fees, availability, user experience, composability, capital efficiency, scalability, and specialization. Among these, liquidity is the most important competitive factor.

The Four Core Business Models of DeFi

1. Matchmaker (Matching Mode)

Representative Projects: Uniswap, dYdX Rating: 2 points

Matchmakers are like intermediaries, connecting those with liquidity and those in need of services. This is the model we are most familiar with, but the problem is: to attract liquidity providers (LPs), the protocol must give up most of the fees.

Taking dYdX as an example, it connects liquidity providers and traders, offering services such as spot trading and perpetual contracts. However, it faces significant challenges:

Liquidity competition is fierce

There are only so many rich people, and the competition is very fierce.

The cost pressure is huge

In order to remain competitive, transaction fees are continuously being lowered.

Profitability is limited

Most of the fees need to be distributed to LPs to attract liquidity.

Data shows that since 2021, the proportion of transaction fees of DEX to trading volume has been declining. Uniswap has decreased from an initial 30 basis points to 5 basis points, and then to 1 basis point, with fee efficiency dropping by nearly 50%.

2. Liquidity Services (Liquidity Service Model)

Representative Project: MakerDAO (now Sky Finance), Lido Rating: 3.5-4 points

These protocols are smarter: they don't want your money, but if you invest your money with me, I will give you better returns.

MakerDAO: You give me ETH, I give you stablecoin DAI
Lido: You give me ETH, I help you stake, bringing you yield in stETH

This model is very profitable because:

No need to pay anyone
Users pay interest directly
No need to provide funds to LP

But the biggest cost is customer acquisition cost - how to get users to accept these derivative coins and have other DeFi projects accept and use these tokens. Once the network effect is established, it can create a strong barrier to entry.

3. Asset Manager (Asset Management Model)

Representative Projects: Yearn, Convex. Rating: 2 points

Asset management means moving traditional financial advisors onto the blockchain, helping users invest their money in various places to earn returns, and then charging management fees.

The limitations of this model are obvious:

Total income is limited

The yield opportunities are constrained by the scale of the underlying protocol.

Limited Profitability

The general returns are limited by the market.

Lack of defensiveness

Investment strategies are easily replicated.

However, Convex is an exception, as it has established a competitive moat by strategically acquiring CRV tokens.

4. Service Provider (服务提供商模式)

Representative Projects: Instadapp, DeFi Saver Rating: 1 point

These protocols wrap other protocols, adding convenience features. It's like dressing up the base protocol, providing automation and trading bundling functions.

But this is the weakest among the four modes:

Anyone can do it, easy to be copied
Low competitive barriers
Income and profitability are limited.

Fifth Model: Supply Service Model (Hybrid Model)

Now, top DeFi protocols are beginning to evolve towards a hybrid business model, combining matchmakers and liquidity services.

Core Logic: Make both the matchmaker and the liquidity provider profit.

Taking dYdX as an example, suppose it is not only a perpetual contract exchange but also issues its own stablecoin:

Users can trade perpetual contracts on dYdX.
Users can stake assets to mint dYdX stablecoins.
Stablecoins can form a closed loop within the dYdX ecosystem.

The benefits are obvious:

Reduce incentive costs: There is no longer a need to spend a lot on incentives to get others to use stablecoins, because dYdX itself is a mature use case.
Diversification of Income Sources: In addition to trading fees, there is also stablecoin interest income, and this portion of income fully belongs to the protocol.
Enhance Competitiveness: With better revenue sources, transaction fees can be reduced to attract more users.
Enhancing Composability: Collateral can be reused, creating more innovative possibilities.

Why is everyone issuing stablecoins?

Let's take a look at the actual impact of issuing stablecoins on protocol valuation:

Aave's GHO: If the supply of GHO reaches $250 million, with an interest rate of 2.1%, Aave will generate an additional $1.3 million in revenue annually, an increase of nearly 50%.

crvUSD of Curve: Curve can convert its liquidity advantage into income advantage. The collateral itself provides liquidity in the AMM pool, earning interest income, and the pool can set lower transaction fees to capture market share. After the release of the crvUSD white paper, Curve's valuation rose by nearly 30%.

Opportunities and Challenges of the New Protocol

The new protocol adopting a hybrid model faces two major challenges:

Need to establish a demand scenario first
Customer acquisition cost is extremely high

This explains why only OG projects can successfully transform, while new projects like Hyperliquid choose not to seek VC investment, but rather to finance directly from users—because liquidity is the most important, and liquidity comes from people.

Future Outlook: The Evolution of DeFi

DeFi is undergoing a significant evolution from simple income models to complex ecosystems, just like the internet evolved from static web pages to interactive applications.

Identifiable Trends:

More protocols will launch stablecoins

Every protocol wants a piece of the stablecoin pie. 2. Hybrid mode becomes mainstream

The single business model is no longer sufficient. 3. Liquidity Integration vs Fragmentation

Balancing is the key challenge.

For investors who missed the DeFi Summer, we are now in another historical moment—the period of significant transformation in DeFi business models. Understanding these changes may help you seize the next opportunity. After all, DeFi essentially involves bringing traditional finance onto the blockchain and playing it again, with the key being how to build more intricate Lego blocks.