dForce Talks DeFi, Stablecoins, and Multichain DeFi on Polygon’s Twitter Space
On August 18th, Polygon invited Mindao, the Co-Founder at dForce to the polygon Twitter space AMA to talk about the latest development of dForce and DeFi.
The full Recap of AMA is organized below.
1: Tell us what is dForce protocol stack and DeFi matrix?
dForce was launched in 2019, prior to the DeFi (Decentralized Finance) summer. dForce has a one-stop shop for all decentralized finance protocols, including assets, lending, and trading. On the stable asset side, we have 2 main stablecoins built tightly within the lending protocol: USX and EUX. We also have a general lending protocol that is deployed on many mainnets including Polygon where people can deposit Matic and ETH as collateral and borrow stablecoins out. We not only support USDT and USDC—the most popular stablecoins—but we also have our own native stablecoin called USX, so we provide a very unique value proposition.
2: What are the key trends for DeFi in the past two years and highlighted lessons learned?
As we started building very early in the DeFi space, at the time we started, there were only a few DeFi protocols including Compound, Aave was live and Uniswap development was just getting done. At that time, none of the protocols worked intraoperatively with each other.
In the past two years, the DeFi ecosystem has been through ups and downs, notably in terms of both market cap and the token price of DeFi governance tokens. However, protocols have matured a lot within the last few years, as more protocols build multichain strategies that are helpful and all protocols are interconnected. We can see Dexes built on top of lending protocols like dForceDex which is doing the same, solving liquidity problems for users while also providing capital efficiency by using our protocol. We are seeing a lot of vertical integrations happening in the DeFi space, with ultimate capital efficiency being our goal.
3. Liquidity mining looks like a good bootstrapping strategy but not a sustainable one, what are the new alternatives for LM, what are dForce’s liquidity incentive initiatives?
During DeFi summer, where the key feature of DeFi summer was Liquidity Mining, a lot of short-term capital was attracted to the DeFi space given its short-term gains probability.
Compound, YFI, and other protocols all launched their liquidity mining initiatives, and the tokens were dumped in the market on a daily basis. Everyone knew this is not sustainable.
The core team at dForce still believe Liquidity Mining is very important as the starting point for protocols to initiate collaboration with other protocols. But we all know this short-term capital is not sustainable and it will not stay within the DeFi protocols— that’s what’s been happening during the past 1 year.
At the moment more alternatives are coming out and dForce is also experimenting with protocol-owned liquidity, which means protocol does not rent the liquidity instead they own the liquidity. This is an innovative way to run the protocol; protocol does not have to pay for the liquidity mining. Since we have launched the protocol-owned-liquidity, we don’t need to incentivize anyone and don’t need to give the emission to liquidity providers.
Through DeFi summer, we have learned that protocol has to control its own liquidity in a way where you don’t have to endlessly give away your governance token. Many protocols are following this route including Maker and Frax, and that’s exactly what dForce is doing.
4: DeFi’s are now all multichain, how does dForce plan its multichain expansion and consideration for different chains? Layer 2 v.s EVM compatible chains?
Our strategy is very consistent.
First of all, we are focusing on EVM-compatible chains which is definitely the most cost-efficient and secure way to do multichain expansion. The industry has witnessed close to $10 billion hacked across many different DeFi protocols during DeFi summer. That’s why we prioritize EVM-compatible chains when we are thinking of multichain expansion. Security is always our first concern.
In addition to that, we also prioritize on Ethereum aligned chains like Polygon, Arbitrum, and Optimism. It’s a simple logic, we simply don’t have any room to spare for security. Other considerations include structural layers.
5: DeFi’s TVL has dropped more than 50% over the past 6 months, what do you think are the catalyst for the new DeFi bull run, and how dForce embrace the new trends?
I think this has been very brutal for the past 12~18 months for DeFi because at one point TVL dropped more than 50% it basically dropped from 200 Billion to 80 Billion USD. You can also link this to the price drop of ETH and BTC including some micro events happening on traditional finance.
We have already seen tremendous growth in the DeFi ecosystem. I still have hope for the next DeFi bull run, though it will be different from previous ones and take on different dimensions. For example, GameFi, NFTs, and SocialFi. dForce is exploring options like NFT lending and swaps.
6: Tornado sanctions have shown that DeFi is now having a head-to-head fight with regulators, what are your thoughts on reconciling DeFi adoption and tightening regulation?
I’ve set my foot in the crypto scene back in 2013. Prior to 2021, people, especially the “OGs”, or crypto-native players, had little consideration regarding regulations. The regulators have not always been crypto-friendly, but the tide has turned. With the launch of DeFi summer, which brought a wide range of players—including traditional finance professionals—into the space, more and more regulators are paying attention to how crypto and traditional finance intersect. The Tornado sanctions are an example of this intersection in action, and could ultimately impact smart contracts and other areas of the ecosystem. We need to fight these legal battles because if we don’t, our whole ecosystem could go down. To avoid this kind of outcome, we need to build more decentralized infrastructure like DNS servers and hosting services.