Ethereum and DeFi Rise Again, New Circular Loan Model Leads Leverage Trend

Recently, the Ethereum ecosystem has once again become the focus of the market, accompanied by the revival of the Decentralized Finance sector. The linkage of several important protocols, such as a certain lending platform, a certain yield protocol, and a certain stablecoin project, has jointly constructed a new type of circular loan system, becoming a key driving force for leverage amplification. Compared to the on-chain stack centered around ETH during the DeFi summer of 2020, this time the leverage upward curve supported by emerging stablecoins appears to be more gradual and sustainable.

Industry insiders generally believe that we may be entering a relatively mild long cycle. In this context, the assessment of on-chain protocols will mainly focus on two aspects: first, it involves a wider range of asset types, particularly under the expectation that the Federal Reserve may cut interest rates, which is likely to further enhance the liquidity of external funds; secondly, it explores the limit of leverage multiples, as well as the corresponding safe deleveraging process, including how individuals can exit safely and the possible ways the bull market may end.

Key Protocols in the Crypto Ecosystem: Interaction between Ecosystem and Tokens

In the vast array of on-chain protocols and assets, according to the Pareto principle, we only need to focus on a few key indicators, such as the total locked value ( TVL ), trading volume, and token prices. More specifically, we should concentrate on those core protocols that are indispensable to the on-chain ecosystem, analyzing their relationships within the ecological network to balance individual importance, ecological connectivity, and the growth potential of emerging protocols.

Data shows that Ethereum accounted for over 60% of the total locked value in DeFi in July, while a certain lending platform's TVL in the Ethereum ecosystem also exceeded 60%. Both can be seen as the "20%" in the DeFi ecosystem, and other protocols must stay closely connected with them to be included as active or passive beneficiaries.

With the rise of new circular lending models, the correlation between Ethereum, a certain lending platform, a certain yield protocol, and a certain stablecoin project has significantly increased. Moreover, with Bitcoin included, we can see that WBTC, ETH, and mainstream stablecoins make up the foundational asset portfolio of DeFi. However, certain assets, while possessing important asset properties, are relatively lacking in terms of ecosystem value.

Different protocols may have multiple values. For example, Bitcoin primarily reflects asset value, while ETH/Ethereum has both asset and ecosystem dual value. People not only need ETH as an asset but also require the extensive DeFi infrastructure and development tools provided by the Ethereum network.

The Future Direction of DeFi Expansion

A certain lending platform has played a core role in this round of DeFi recovery, providing leverage support for the entire circular loan system. It has become the closest existence to infrastructure-level on the Ethereum chain, not only because of its highest TVL, but more importantly, due to the comprehensive advantages of its security and capital scale.

However, the competitive landscape is not static. Emerging lending protocols are collaborating with innovative asset types, and certain new public chain ecosystems are actively expanding their DeFi capabilities, all of which could impact the existing landscape.

From a proactivity perspective, Bitcoin and a certain emerging public chain ecosystem represent two extremes. The latter is actively expanding its ecosystem in various ways, including introducing new types of transactions, connecting liquidity across different levels, and supporting front-end agents.

Overall, we see:

1. A certain yield protocol is expanding the types of assets that can be split, from fixed income to a broader derivatives market.

2. A certain stablecoin project is striving to become a risk-free asset provider in the DeFi space through a DeFi circular loan model and treasury strategies.

3. A certain lending platform has become a de facto lending infrastructure, closely tied to the status of Ethereum.

4. Bitcoin and Ethereum represent the limits of the development of the blockchain economic system, and their level of expansion will determine the growth potential of DeFi.

5. Although a certain emerging public chain ecosystem is temporarily lagging in total locked value, its growth prospects are widely regarded as promising due to its close ties with existing DeFi giants.

Conclusion

The current DeFi ecosystem exhibits a high degree of cooperation and closeness among several core protocols, which not only increases the freedom and efficiency of capital utilization but also makes the entire ecosystem more prosperous. However, this close connection also implies shared risks.

It is worth noting the "re-anchoring" process that the DeFi field is undergoing — shifting from ETH to new types of stable assets. Compared to the high-value but volatile ETH, emerging stable assets have a natural advantage in price stability. The DeFi ecosystem built on these assets may be more robust, theoretically enabling a more gentle process of leveraging and deleveraging.

In this rapidly evolving field, emerging protocols need to continuously innovate and deeply integrate with the existing ecosystem in order to secure a foothold in the fiercely competitive market.