The protocols and trends that I foresee dominating in 2022
This article is going to be quite a bit different from my two previous ones. In this article, I will outline the major trends I see for the coming quarters if not the coming year. I will go through and analyze the major themes in regards to protocols and how their respective tokens will function in their respective economies.
Defi Blue Chips
The first trend I envision is a trend we’ve had already, more than a year ago — the coveted DeFi-summer. I’m highly confident that we’ll see some of the principal DeFi blue chips reach their past ATH, as their protocols continue to bring in revenue and accrue value for their token holders. We’ve also already seen a willingness to change tokenomics to accrue even more value for the holders.
Here the obvious example is Yearn.finance moving to a veToken and not just a governance token with infrequent buybacks.
Other protocols from the legendary summer past, that I see continuing to bring in value is protocols such as Aave and Maker, both lending protocols that have accrued a lot of value for their investors. Maker in this case is especially noteworthy to analyze, as we’ve seen the protocol burn their MKR token as liquidations happen, causing deflation for the MKR token.
Here is the burn progress of the MKR token seen, so far already 2.24% of the supply has been burned, meaning the token itself is deflationary, and furthermore also provides the ability to govern the MakerDAO itself.
These are just two of the protocols that I believe are going to do well in 2022 and continue to accrue value for their investors. There are multiple additional De-Fi protocols doing great things, however, if you’re looking for an unassailable bet these two are some of the most reliable De-Fi tokens out there.
Structured Financial Products
The second trend that I see getting more and more popular is without a doubt structured financial products such as Ribbon and Dopex, obviously, Ribbon is more of a structured product than Dopex, but I think it’s far to bundle them together. Structured financial products are packaged monetary mechanisms that use an assortment of derivatives to execute some distinct risk-return purpose, such as betting on volatility, enhancing yields or principal protection
So how does RBN work? Well, it basically creates a call vault, that once a week uses all its available funds to mint an identical amount of tokens, which are representations of an option contract. The fault is then put up for auction and anyone can then bid as they see fit and pay a premium. The next Friday, at the end of the week, as the options expire either in the money or out of the money the vault then withdraws. In case it expires out of the money, it would then withdraw more tokens than originally minted.
So how about Dopex, how does DPX differ from the products that RBN provide?
So instead of creating a call and put vaults like RBN does, and therefore providing a structured financial product, DPX has instead created a decentralized options protocol, which can provide liquidity for both option writers and buyers. Two of the products they provide are Option Pools and Single Staking Option Vaults (SSOVs). So, how do they work? Option pools in simple terms enable the depositor to gain yield on his assets by providing liquidity for users (buyers) that want to buy call and puts options.
SSOV on the other hand allows the user to lock up tokens (akin to ve) and earn yield by depositing assets into a contract that markets it as a call option to buyers at a fixed strike rate at the end of the month.
Furthermore, if the two products previously mentioned wasn’t enough, Dopex also provides the ability to mint synthetic derivatives by using their rDPX token as collateral, meaning that, which causes the underlying token to accrue value as the derivatives themselves would be proxies for traditional markets while using the rDPX token as collateral.
As with options in general you always have to maintain a calm demeanour and realize that you’re dealing with extremely volatile assets, as we can see by looking at the realized volatility through SSOV.
Decentralized Perpetual Exchanges
The next trend that I think is going to present itself in ever-increasing popularity over the next few months are protocols such as GMX. So, what is GMX you ask?
Let me tell you, GMX is in simple terms an exchange, not a centralized one such as Binance or FTX, but rather a decentralized perpetual exchange that enables the users to trade with leverage directly from their own wallet. GMX is currently available on the Ethereum layer 2 Arbitrum (to save on fees) and also the L1 competitor Avalanche. Like Dopex before it, it also has two tokens detrimental to the protocol, GMX and GLP. GMX is the utility and governance token (accruing 30% of the platform’s fees) and GLP is the platform liquidity providing-token, that accrues the other 70% of the fees from the protocol. GMX also enable the user to save on fees, depending on the amount of GMX you hold in your wallet.
What’s so great about protocols like DPX and GMX is that they facilitate traders to execute transactions without an intermediary in the form of a CEX or equivalent, which augments the transparency of the protocols. Using a DEX also means you’re using an AMM, enabling autonomous pricing mechanisms for the protocol (which means there’s no concern that a CEX might be manipulating the prices)
GMX has over the last month seen a huge increase in daily users on AVAX as indicated below:
Furthermore, the total volume and fees accrued by the protocol (both on Arb and AVAX) have already reached astonishing heights.
The demise of Olympus forks
So far we’ve mostly touched upon things that I think are going to do well during the coming months, so are there any protocols or trends that I see getting less popular or have a rough time fitting into the current macro trends? There is actually, I foresee the multitudes of Olympus (OHM) forks having an ever-increasing difficulty in accruing new users to their platforms as they lack trust from both their existing, but also new users. We’ve seen problems arise in the last two weeks, not only with OHM having trouble retaining users, and that as a result reflecting in the price. Furthermore, we’ve also seen TIME have a cascade of liquidations similar to OHM as the common users have taken to using (9,9). So what is (9,9)? Well, it’s basically the act of taking out a loan, in some cases leveraged on your already extremely volatile asset with insane APY (most over 60.000%). Which in my opinion is complete insanity, and extremely risky, the opposite of what you should be doing if you’re trying to make it in crypto.
As I put it on Twitter earlier
“$TIME holders complaining about being liquidated when they themselves provided the collateral and took loans on a crazy inflationary token is pretty funny ngl. Don’t take loans that can be liquidated if you can’t deal with the results”
(Update: TIME Treasury Manager Sifu has been ousted as a prior scammer for almost 2 decades)
One of the ecosystems that I’m most excited about is the entire ecosystem building around Cosmos and their SDK as well as their IBC, bridging other blockchains together in one of the most seamless UX/UI experiences I’ve had in crypto so far.
IBC, if you aren’t aware is the Inter-Blockchain Communication protocol, which allows blockchains to talk to each other. This means that transportation of tokens across different sovereign blockchains are possible, so far across all the Cosmos SDK blockchain, but also Terra which is also built with the Cosmos SDK. The possibilities are endless really, and we’re going to see even more L1 blockchains being able to be bridged through IBC. The one I’m most excited about is the development of EVMOS which will enable EVM on Cosmos.
The reason it’s so easy to build on Cosmos is the fact that they provide two incredible solid components to build your own blockchain: Tendermint (PoS consensus algorithm) and Cosmos SDK (modules for architecture).
As you can see underneath, this is only the beginning of the universe.
Furthermore, what JUNO is doing is also something I find extremely interesting. Juno is a sovereign blockchain made specifically to become the go-to chain for deploying smart contracts, by providing modules like CosmWasm which allows for dapps to be compiled and secured with multi-chain smart contracts. CosmWasm enables Virtual Machines (VMs) on the Cosmos SDK (Think EVM/FVM). Wasm in this case serves to compile a certain developers language of choice into a virtual machine, which provides a better environment for testing, security and speed. CosmWasm in layman’s terms permits you to use standard, robust, and safe languages to write performant and secure smart contracts. These smart contracts can then be deployed to a number of different blockchains and communicate across blockchains via IBC.
Layer 1’s and layer 2’s battle for dominance
This is becoming much longer than I originally intended for it to be, so I think I’ll end with my closing thoughts on the L1 and L2 battles.
I for one foresee Ethereum continuing to be the dominant L1 chain, however, I would certainly imagine that we’re going to see more and more developers and protocols move their transactions and contracts over to L2’s on top of Ethereum such as Arbitrum, Metis, Optimism, ZKSync and so on. While leaving the L1 of Ethereum as the security and governance providing layer.
As we can see underneath, the Total Value Locked on L2’s are ever-increasing, and probably will continue to do so in the near-to-distant future:
In regards to layer 1 solutions I think we’re going to see the rotations continue, not just forward, but also rotating backwards to previously popular chains.
We had the entire SoLunVax (Solana, Luna, Avax) period, which now recently has developed into the FOAN (Fantom, One, Atom, Near) narrative, and I imagine the SoLunVax narrative will become prominent again, as newer technologies get developed.
For the fighting L1’s, overlooking Ethereum, it is frankly a technological cold war to see which chain can develop and produce the most resistant, safe and performance-focused chain before getting eaten by other chains.
I hope you enjoyed this article,
You can find me on Twitter at @0xrainandcoffee