How DeFi on Ethereum Is Evolving Through Crypto Winter

Some of Ethereum’s most prominent DeFi protocols are taking advantage of the current market downturn to rethink their governance structures or offer completely new services. Others have focused on improving their resilience by strengthening their operations. 

DeFi Projects Plan for The Future

Despite the continuing decline in crypto markets, DeFi protocols continue to grow. 

Notable among the projects that are showing signs of development include the mainstays of EthereumDeFi, such as Aave and MakerDAO, the decentralized exchange Uniswap and Lido, which is the most liquid staking platform for Ethereum. These protocols, along with a few others such as Curve and Compound, are considered fundamental to the ecosystem’s financial stack due to their technical innovations, high security, and the amount of capital entrusted to their smart contracts.

While the market downturn has exposed weaknesses in decentralized finance, most notably through the collapse of the Terra blockchain and its algorithmic UST stablecoin, these so-called “blue chips” appear to be weathering the current storm and have continued developing their protocols and even expanding their offerings. Join Crypto Briefing Let’s take a look at the top DeFi updates over the past few months.

MakerDAO integrates traditional finance 

MakerDAO is the first project on our wish list. Users can use the protocol to secure volatile assets as collateral in order to mint the dollar pegged DAI stablecoin. 

The protocol has been making waves lately, most notably for its DAO’s recent decision In an effort to diversify its holdings while generating yield, it will invest 500 million DAI of its treasury money into U.S. Treasury Bills and Corporate Bonds. 

MakerDAO also offers Voted in favor Huntingdon Valley Bank was able to borrow up to 100,000,000 DAI against offchain collateral. This marks the first time a traditional bank has taken out a loan through a DeFi protocol. MakerDAO also has five other real-world assets vaults, and plans to add more.

The recent advancement of the protocol’s product offerings has led to another proposal on the MakerDAO forum to create a new advisory board in charge of fully researching and later educating MKR token holders on future proposals. The proposal was approved. Rejected narrowly A hotly contested election saw more than 30% MKR supply commit to voting, which is a record in DeFi governance. Still, the vote’s near approval hints that attitudes toward the extreme decentralization pioneered by DAO governance structures may be changing. 

Uniswap expands to NFTs

Another notable development in the DeFi space comes from Uniswap, the world’s largest decentralized exchange. Uniswap allows users to trade tokens without having to trust a third-party. They can also earn yield by providing liquidity to the exchange’s various trading pairs. According to data from Defi Llama, The total value of the protocol is currently more than $4.8Billion. It includes the Layer 2 networks Arbitrum and Optimism and Polygon as well. 

Protocol Announcement Genie, a market-aggregator for NFTs, was acquired by Genie last month. Genie pulls listings on all major Ethereum exchanges, such as OpenSea or LooksRare. It also offers bulk purchase through an optimized smart-contract to reduce transaction fees. Genie integration is likely to result in Uniswap providing users a wider range of NFT purchase options that any one marketplace.

While this is not the protocol’s first foray into NFTs (Uniswap previously pioneered NFT liquidity pools with Unisocks, and later adopted NFTs to represent liquidity provider positions in Uniswap V3), the Genie integration signals a significant expansion of Uniswap’s product offerings. NFT trading will soon be available on the Uniswap Web App. 

The Uniswap governance forum, which is not only for NFTs but also includes governance forums is also available. currently discussing an idea suggested by Ethereum co-founder Vitalik Buterin to turn the UNI token into a price oracle token in order to ensure the robustness of Ethereum’s stablecoin ecosystem.

Aave discusses launching its own stablecoin

Aave has its eyes set on the future, despite the market decline. The platform offers lending. Current considerations include a proposal to create its own decentralized stablecoin, GHO. 

GHO would be issued if users deposit collateral in Aave Vaults. This is similar as MakerDAO’s DAI. However, Aave would differ from MakerDAO’s approach by introducing “facilitators,” DAO-approved entities that can generate or burn GHO in a trustless manner. Representatives from other DeFi protocols, such as the Frax Protocol and Yeti Finance, were among those offering to take on facilitator roles, even though the structure hasn’t been fully mapped out yet. 

Experiments in Lido with Governance

MakerDAO and Lido are also questioning whether MakerDAO’s standard token voting DAO governance model is best suited for their needs. 

Lido has experienced rapid growth, with the protocol now being processed Over 30% of all staked ETH was attained. Lido allows users to stake their ETH to get stETH tokens. These tokens can then be used to collateral in different DeFi protocols and still earn staking yields of between 4% to 5%. 

Lido’s growing ETH market share has prompted questions Over whether the platform has accidentally made Ethereum more centralized. The DAO These topics were discussed the idea of self-limiting Lido’s potential market share before eventually deciding against Such a proposal.

Lido is, however, Take into account a new governance model that would essentially create a “checks and balances” dynamic between holders of stETH and of LDO, Lido’s governance token. The dual-governance model would grant stETH owners veto and antiveto power over LDO holders’ proposals. This mechanism would make governance takeover much more difficult while aligning the interests LDO and stETH holders.

DeFi Tokens Lag Behind

While many DeFi protocols seem to be making progress in governance, the market has been suffering from weak price actions for more than one year. 

Major DeFi governance tokens peaked around May 2021. The ecosystem entered a bearish market with NFTs. Boomed During the second half 2021, liquidity and investors were flocking to the cryptocurrency ecosystem. The decline has been accelerated by the global economic downturn in 2022. MakerDAO and Uniswap governance tokens are currently 75% lower than their highs. 

Many DeFi tokens have performed poorly despite the fact that their protocols make significant user fees. Token Terminal data Uniswap The company has earned $45.2 million over the last 30 days. Aave $9.3 million, MakerDAO $1.9 million Lido $17.6 million. 

These projects are still being used, but their governance tokens do not currently capture any revenue. Token holders can be affected by the lack of value accrual, but governance capture may also occur. A governance token’s price drops significantly if it is not in demand. A malicious actor might be incentivized into acquiring a large part of the supply. Forcing A vote in favor of the transfer protocol funds to themselves.

In several DeFi governance forums, the question about value accrual was brought up to no avail. Uniswap And Lido. Yearn.Finance is notable for its plan to install YFI holders will not be able to earn any protocol fees if the buyback mechanism is used to support its token price. 

What’s Next for DeFi?

DeFi lost its popularity in 2021 after a remarkable run in 2020. Ethereum and other Layer 1 network took the spotlight during the crypto market rally. Many DeFi tokens rose to new heights in May 2021. However, many have experienced severe losses in dollars and Ethereum terms in recent months. Nonetheless, the recent developments in Ethereum’s foremost DeFi communities shows that the ecosystem is evolving. The projects that were built during the winter phase of DeFi should reap the rewards if it ever returns to its former glory.

Disclosure: The author of this article owned ETH at the time it was written and several other cryptocurrencies.