Current State of DeFi
DeFi stands for Decentralized Finance and covers a wide variety of projects and protocols that aim to eliminate the need for traditional intermediaries (e.g. brokerage firms, banks, centralized exchanges — a/k/a financial overlords). With the rise of blockchain technology and smart contracts, for the first time in human history, parties can transact with one another in a permissionless and open way. Trust is established not by human will or with the seal of approval from an intermediary but by cryptography and smart contracts. From this wave of technology, giants have emerged as one can see by scrolling down the market cap rank of different coins.
MakerDAO for creating stable and dollar-pegged tokens using volatile assets as backing collateral and UST and FRAX that improved on this concept to increase capital efficiency; Chainlink for oracles; Uniswap, Sushiswap, Pancakeswap for decentralized exchanges leveraging user-provided capital; Compound and AAVE that allowed anyone to be a lender or a borrower; Curve for stablecoin swaps; yearn.finance that showed it was possible to create automated investment strategies. We stand on the shoulders of giants.
In spite of the breakthroughs that we witnessed in DeFi, major pain points remain especially around the inflationary liquidity mining incentives. Many DeFi protocols allocate a large chunk of their governance tokens as incentives to their liquidity providers in order to bootstrap liquidity. Naturally, short-term oriented mercenary capital rushes in to take advantage of liquidity mining incentives (also known as “LP tokens”) and benefit from temporary high annual percentage yield (APY), but shortly thereafter mercenary capital dump these LP tokens leaving community members holding the bag. This pump-and-dump scheme prevalent in much of DeFi has tarnished DeFi’s image in the eyes of retail investors.
To make matters worse, first-timers have to constantly worry about rug pulls from malicious actors, pay exorbitant gas fees, slippage fees and other hidden fees, jump through different bridges, survive wormhole hacks. And the list goes on and on. It seems as if DeFi, despite much of its promises, has morphed into an uneven playing field benefiting mostly whales, traders and speculators. In the meantime, retail investors fell by the wayside.
Our team members are all survivors of rug pulls and paid our fair share of gas fees. As gaming and blockchain veterans, the members of the DeFi Space team plan to overcome several pain points in DeFi by incorporating gaming. We aim to transform DeFi from a yield-chasing activity to a strategic gaming experience. More on this in later….