Four Pieces of Judgments Concerning the Future of DeFi


Thoughts on the Blockchain by Mengyan on September 18


This paper is the final, word-for-word transcript of the final lesson of An Introduction to DeFi: A 14-Day Bootcamp Project, which was co-produced by Babbitt and Token Mind. The transcript has been edited before publishing. It is for everyone’s reference only, and we welcome all types of discussion and criticism.


Welcome to learn An Introduction to DeFi: A 14-Day Bootcamp Project, jointly launched by Babbitt and Token Mind.

Thank you for your accompanying us along the journey, and today, we finally complete this project. Lesson fourteen, On the Future of DeFi.

I am the lecturer of this lesson, Meng Yan.


In the past two weeks, we have all learned DeFi in terms of its principles, financial significance, basic operations, asset analysis, liquidity mining, certification economy and others. I believe that if you have studied attentively and have practiced actively, you should have entered the field of DeFi. The news has just reported that, Uniswap, a leading project in the field of DeFi, had also announced that it would launch its governance token, UNI, with liquidity mining starting on September 18. Major exchanges began their UNI trading immediately, and a new wave is about to occur in the entire industry. I also hope you all can reap the benefits of your studying through this process.


Our three lecturers have put every last piece of our efforts into the course, hoping to present you with one of the best introductory courses on DeFi in the current market. In fact, the final delivery of the course has exceeded our initial design, in terms of the comprehensiveness, depth and richness of content. At first, we planned 14 lessons, each of which lasts 15 minutes each, with a total of three and a half hours. In fact, we ended up producing more than seven hours of teachings. On the one hand, this is the inevitable result of rapid changes in the industry; and on the other hand, this is the result of combining teaching with learning. During the preparation of these lessons, we lecturers have also gained a lot.


With today being our last lesson, let us look forward to the future of DeFi together.

Some friends of mine might know that I entered the blockchain industry in 2015, and five years have passed since I started this career. I remember a few years ago, when I introduced my blockchain résumé, I often explained that I was not in the industry for long, and that I was not as qualified as those who had started mining bitcoin in 2010 or had started working on exchanges in 2013. Now I, unwittingly, have engaged in the business for five years and have experienced a lot of things, so now I hold some certain qualifications in the industry.

In this industry, many people say that a year seems to be ten, for it has been changing at a rapid speed, as if at the speed of light. In the past few years, I have witnessed people in the industry who have gone through ups and downs: some experienced sudden fame, while some experienced failure or declines after a huge success, but most people worked hard and bustled about for nothing.

What are the characteristics of such people? According to my observation, the biggest characteristic is their preference for chasing hot topics, and switching tracks frequently. They never pay attention to the research of this industry, and do not think about the trend and the future. They just see where the hot trends are, and pursue in a hurry. As a result, they are often too late to enter, and then stuck in the trouble of cheap copies and poor imitations. Besides, they have no patience, so they would chase the next hot issue before accumulating in the previous one. Such people are unlikely to succeed in any field, whether they are in trades or start-ups.

I often wonder, what is the most important factor for success in the blockchain industry? My conclusion is just one simple point: act before others, and stick to the choice. For one who want to succeed, he should observe the trend and lay out beforehand, acting  accumulating, and just waiting for the opportunities.


Our industry pushed by waves, each of which are of different themes, but not meaning that there are no patterns. In 2013, it was mining; 2016 to 2017, public chains and ICO; 2020, DeFi. When the wave comes, you will rise as long as you have been standing in the right place.


But keep in mind  that you must be there ahead of time and, before it has gained certain accumulation. You cannot rush towards the coming wave as a bandwagoner, for you will be too late.

By the time centralized exchanges became hot in 2017, Huobi and OK had been operating for three or four years and had undergone several crises. Subsequent others saw that exchanges were making profits and began doing themselves, but it was too late. Today, ICO models certainly has a lot of problems, but there are also some amazing public projects, such as Ethereum, Filecoin, Polkadot, COSMOS. In fact, before they really came out, members of their core team have accumulated their experience in the industry for several years. Even for the controversial TRON, Justin Sun also stayed a few years in Ripple before developing the latter. By this year, virtually every successful DeFi project has a build-up process, and it is not like you can simply drop a smart contract and expect it to succeed. Perhaps you cannot tell the difference in the short term, but with time going by, the market will soon sift out the truly excellent projects and reward them.


Therefore, in the blockchain industry, I think grasping the future trends, taking the first step before others, and having persistence are the most important factors leading to success.


So, today, I am going to take a look at the future of DeFi with you. Of course, predicting the future is quite an unreliable thing, so I am not necessarily right, but I hope my thought framework will be helpful for your thinking.


I have four clear judgements about the future of DeFi:

First, on the technical level, there will be a major technology upgrade in DeFi in two years.

Second, DeFi will drive a new great development of the value network, or the Open Web.

Third, the real, and traditional economy will be able to participate in DeFi through digital assets.


Fourth, DeFi will be supervised and regulated.

Now, for the first piece of my judgements, there will be a major technological upgrade in DeFi in two years.

Looking back at the development of blockchain technology over the past decade, I see a what I termed as the “three-year cycle”.

What does it mean? It means that the technological advance in this industry usually progresses in a pattern of three or four years. It often takes this time for a technology to be developed till its full maturity. Then its flaws will inspire the next generation of technology to continue into the next cycle.


Bitcoin, for example, was launched in 2009, and its technology was not fully developed until 2013. There were many bugs and minor flaws at first, which lasted for about three or four years, Bitcoin becomes mature in 2013, offering a 7 TPS performance, 1 MB per block storage limit, a single digital asset, which is bitcoin itself. It was already perfect for then, so there was immediately a wave of 100-fold gains, which inspired Vitalik, editor of Bitcoin Magazine at the time, who was quite familiar with bitcoin. Noticing the advantages and disadvantages of bitcoin, he proposed Ethereum at the end of 2013.


Two years later, the Ethereum was launched, and it was only in 2016 that it really started to operate, and became widespread in 2017, which was another three or four years after being proposed. Today, we all see the what Ethereum can do: 15TPS; turing-complete smart contract support; customized tokens; but no cross-chain capabilities; providing distributed storage through Swarm, but this did not work. As soon as the Ethereum came out, it surprised everyone, which immediately created a new application scenario, crowdfunding.

The success of Ethereum inspired a new set of projects, and all of us probably remember the ICO days of 2016 and 2017, and more recently, when Filecoin, Polkadot, COSMOS, as well as Facebook’s Libra, were in fact inspired by the success of Ethereum. These projects also needed three or four years to really mature. Now we have achieved the results, such as Filecoin, which did its crowdfunding in 2017, and left people waiting for it to eventually launch; finally, it has came out  this year. Polkadot, two weeks after its crowdfunding in 2017, became widely derided for the DAO situation that locked and lost a shocking amount of Ethereum. But they went on, and two or three years later, it finally came to fruition. Polkadot is now one of the most talked-about projects in the industry, but still needs some time to mature.

Therefore, we can say with confidence that over the next two years, a number of technologies that have spawned during the ICO boom will be available, among which the most notably ones are Ethereum 2.0, Filecoin, Polkadot, COSMOS, Libra and, of course, a wave of DeFi projects. What will DeFi’s technical infrastructure look like when the project hits the ground? According to the target of Ethereum 2.0, we will have 100,000 TPS performance, IPFS storage, cross-chain assets and cross-chain smart contracts, multi-language programming and other capabilities; only after these are achieved, it can be said that DeFi’s technology infrastructure has realized fully mature. Think about how much we could do on DeFi at that time? It is truly exciting!

This is my first judgment.

My second judgment is that DeFi will enable the Open Web to thrive.


For a long time, we have been talking about dApps, Web 3.0, Open Web, the Internet of value, and decentralized Internet in the blockchain industry. However, what exactly does it mean?

Let us take a look at the Internet today. The Internet was first de-centric and distributed. But it became clear that, over the past two decades, the Internet has become more and more centralized. But I want to ask you, when we talk about the centralized Internet, what do you mean about as the subject of the centralization?


In fact, we mean the centralization of data management power and the centralization of access to service. Let’s see if that is the case.


Therefore, what us blockchain people want to realize, in fact, is a truly open, truly decentalized value on Internet. The first is to return the power of data management to the real owner of the data, and the second is to make all services open and accessible.

To achieve this goal, we must rebuild the foundation of the entire Internet.

As you can see, the traditional Internet can be roughly divided into four layers:

The storage layer, by which we use data centers and cloud storage to store data today;


The computing layer, where we put a lot of servers to run logic of the business within the cloud computing center;

The interconnectivity layer, which connects servers using mature Internet protocols, so that they can communicate with each other. The mainstream interconnection protocol today is HTTP and HTTPS.


On top of the above is the application layer, where the large Internet companies that we are familiar with produce their products on this layer, and have spawned a billion-dollar industry.

But as the image above shows, the traditional Internet does not have a value layer. Therefore, we cannot do things such as payment, transfer and financial asset transaction on the current Internet.

Some might disagree that, since we are now using WeChat and Alipay payments every day, why do I say that the traditional Internet has no value layer?


Everyone should know that what I mean is WeChat and Alipay are in-app payments, which are not an Internet protocol, nor are they a value layer. Therefore, you can only pay each other within WeChat and Alipay, not across apps. And if the traditional Internet has a value layer protocol, we can pay and transfer money across any borders at will on the Internet.

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Then we take a look at the categories on the right. The blockchain industry looks messy, but in fact it is doing very something awesome. These past few years have seen rapid growth, and it may have appeared that this space running out of ideas. What does it aim to do? In fact, it aims to build a complete decentralized of Internet of value, which I simply refer to as the Open Web.

You see, for every layer of the traditional Internet, there is a corresponding solution in the Open Web.


For the storage layer, the traditional Internet uses cloud storage, while the Open Web uses Filecoin, IPDB;

For the computing layer, the traditional Internet has the cloud computing, while the Open Web has Ethereum, EOS, Cardano, NEO, TRON and other smart contract public chain;

For the interconnect layer, the traditional Internet has HTTP, while the Open Web has IPFS, as well as Boca, COSMOS and other public chains dedicated to crossing chains;

For the valuable layer, the traditional Internet has nothing, while  the Open Web has a complete DeFi ecology.


It seems to me that DeFi is the main competitive advantage of the Open Web over the traditional Internet, because it is structurally different; it is modular, not centralized. If your traditional Internet controls the lead in network effects, there is nothing you can do on this layer, for it is beyond your reach in scale. Consider the following problem: over the past few years, why successful projects in the blockchain industry have focused almost exclusively on digital assets and finance, and almost all attempts of applications have failed to garner mass adoption. Since if you do application, you are competing with the strongest companies and teams in the traditional Internet. With your little money and little technical strength, how can you win? But if you do the value layer, do DeFi, then they would have nothing over you, how do they compete with you? Therefore, at the present stage, you do not want to think about anything else, just do DeFi and create a better value layer from the ground up. As for the outside noises saying that you do not do application or you do not support the real economy, you can temporarily ignore them.


Of course, the Open Web is going to have to do applications sooner or later as long as it wants to develop rapidly, or it won’t reach the average user, and it will always have to play in the small circle of investors and speculators. But for creating applications, how can we compete with the traditional Internet?

The answer is in DeFi. After DeFi develops, it will effectively empower the decentralization of popular applications on the Internet. For a decentralized Google, Taobao, WeChat, Tik Tok, YouTube, their biggest competitive advantages will no longer be products or users’ experience, but that they can quickly complete the entire process from payment to distribution, financing, listing, transactions on DeFi, which also can use mining and other incentives to quickly achieve bootstrapping of network effects and growth and do not require assistance from the traditional Internet.

Do not think this is some unorthodox and unreliable thinking. In fact, new technologies need new industries, and new industries need new finance. Not long ago I watched a documentary while on a flight, which was about the early development of the Internet. As you look back on that history, you can see that the Internet relies completely on venture capital, a new financial model using money to form create industry. It is like this in the United States, and in China it is even more so. For the Internet industry, the mainstream finance of the time was the indirect finance through banks, which was a conservative and out-of-date financing model. Without the full support by venture capital, inputing a large amount of high-risk investment capital, spending money to start off, and then accumulating popularity, the Internet would not have achieved its subsequent development. In 2000, when the .COM bubble collapsed, how much market value evaporated? 1.4 trillion dollars. People were so regretful, and blamed the so-called new economy and the financial model described above, treating internet entrepreneurs as impostors and dogs. But what about now? Twenty years later, both Apple and Google are trillion dollar companies today.

Today we see the decentralized Internet and the Open Web in the same way. The new industry needs new finance models to support it. It may seem brave and bold for you to laugh at the open finance for now, but in the long term, it will turn out to be a stupid act. For a newborn industry, as long as its logic is correct, it will need a new finance to support it, and it gradually grows. Today, for the Internet of value, the traditional venture capital plays the role of the banks in the past, and has become a conservative and outdated finance model. DeFi is now in fact constructing a new finance model, finance instruments and finance infrastructure. It is not to build a new big casino, allowing inside and gamble, competing and speculating, but to empower and support the development of the new industry. That is the mission of DeFi.


On the other hand, just as the development of the Internet made venture capital possible, through only the development of the Open Web can we really achieve the great development of DeFi. We must recognize this NOW.

Therefore, in the short term, we must focus on DeFi, even if people currently call it a big casino or a fad, but after this stage, we must work to empower its application.

This is the summation of my second thesis.

The third judgment is that the real economy will participate in DeFi through the digital asset chain.


The biggest criticism DeFi faces today is that it hasn’t supported the real economy yet.

If DeFi is considered too new of a creation to support the real economy, I think most people would understand it eventually and are willing to give DeFi more time to achieve this. But many people have concerns that DeFi does not support the real economy in its logic, and that no matter how much time people give it, these two things are not compatible.


To that end, we need to discuss whether or not DeFi can support the real economy, and how.

A lot of people talk to me about how to embed DeFi in a traditional industry use-case, or how to remould an industry with blockchain, eliminating the middlemen, rebuilding the industry, optimizing business processes, and others.


I will not say that they are impossible, but it is too early to decide them now. I assert that the integration of the real economy and DeFi is not established on the business logic level, but first through the digital assets.

You may probably know that I work on digital assets and tokenomics. I have a model that I talked about on many occasions, shown in the image above. This is one of my judgments. The real economy generates reliable data through the industrial blockchain, and based on the reliable data generates digital assets, and then the digital assets are put into DeFi for circulation. It is a simple pattern, so I would only talk about why I think the integration of the real economy and DeFi is going to occur in this way.

The reason is that the real economy uses blockchains to rebuild business procedures, but this is a very difficult journey, because there are many things to do. Blockchain is a data management technology, and data management is in fact a fundamental layer for the IT of an enterprise. When the fundamental layer changes, the upper structure will be affected. In addition, the blockchain involves changes in the relationships between the various cooperating agencies and departments. Therefore, the entire transformation process will be over decades. The Internet has been around us for 30 years, but many industries and institutions still apply the traditional method. Even the Internet has experienced such problem, then just imagine what a journey ahead will be for blockchain!

By contrast to traditional analog assets, it is much easier for digital assets to grow. The real economy always require financing. It should be agreed by all that, in the modern economic system, the real economy is the organ, the fund is the blood, and the finance is the heart. The real economy cannot do without financial support for a single moment. If one needs financial support, one would need to swap his/her assets for the funds of someone else. That’s the essence of the matter. Financial markets are the place where you find this kind of swap, and financial institutions are the mediums that help you complete this swap. We are not trying to promote the idea that DeFi is better than traditional financial markets. It is just that DeFi is now a new financial market, so is the real economy ready to enter? At least in equilibrium, some must be willing to enter. Therefore, if you enter DeFi, you would have to swap my funds with some credible assets. In this way, it is clear that the real economy has something to do with DeFi, and must start with digital assets, which are simple, clean and lightweight.


This is my third judgment.

Of course, if you come from the traditional finance, and you see my second and third judgments above, you may probably feel that we are out of our minds. You might think we are doing whatever we like. And that we underestimate the importance and regulation of finance. Please be assured that, of course we know that finance is a heavily regulated industry, and that we respect and recognize the value of regulation. But I want to emphasize two points: first, against the background of the trend of science and technology, regulation would need to keep up with the times, rather than be ossified in tradition; second, under the new international circumstance, China and the United States will sooner or later realize that DeFi, as well as other kinds of open finance, is the future for global finance, and they must apply new regulatory thinking in guidance and management to keep talent in their countries.

Therefore, my fourth judgment is about regulation. I believe DeFi will be effectively supervised over the next few years and will gradually become regulated.

Today, when we login in wallets, such as Metamask, MyKey, or imToken, we are actually flying away from Earth and arriving at a planet called DeFi and Open Finance. On this planet, you no longer have citizenship. Your real name does not matter, and here we can freely build new economies and new finance.

But will this situation last? Can the major states remain indifferent about this new planet? No. It is only a matter of time before they land.

For further explanation, regulation is not a one-size-fits-all, and prohibition is not a feasible answer, either. And regulation is about entering, learning and acting. For now, the United States is leading ahead in this regard compared to China.

The American SEC, Securities and Exchange Commission, has five members, and there is one female member called Hester Pierce. She is referred to as “Crypto Mom” overseas due to her amity with the crypto-economy community. As a matter of fact, I also believe she is quite open-minded. In a conference in Chicago this February, she laid out a proposal for a “safe haven”, Token Safe Harbor. In the proposal, she argued that the existing regulatory framework should not hamper innovation and impede American competitiveness, adding that the projects which are decentralized, open-sourced and with full disclosure should enter the “safe harbor” as long as they are registered in the SEC. Therefore, the “safe haven” is actually a big sandbox, where projects can be exempted from securities law supervision within three years. What does this mean? It means that you can finance through tokens, and the SEC would not regulate you within the three years. It is providing entrepreneurs across the block chain a clear path to what they can do. Before this, national regulators only talk about what people cannot do, and this always confused innovators. The proposal for a “safe haven”, which has not implemented yet, but it is expected to land in a year or two. Once implemented, it would be safe to say that entrepreneurial innovators around the world are likely to rush to the SEC, and the whole vista would change radically.

But what will happen to DeFi before this proposal is implemented? Not long ago, Mrs. Pierce made some comments on DeFi to the media. First, she said that DeFi could help decentralize regulatory thinking, and she affirmed that the goals of DeFi were more diverse and influential, unlike the ICO. Second, she made it clear that DeFi was still limited in size, so regulators should allow it to grow without restrictions, which would be certainly good news for the industry. Third, she believed that regulation would eventually have to pay attention to the industry, or more directly, to DeFi. Fourth, she thought that DeFi would challenge the current regulatory framework. To put it bluntly, she meant that the current regulatory methods maight not work, so they had to make change for DeFi.

Now we should be clear that DeFi will certainly be regulated.

Is this a good thing? I think as long as regulation is serving the good and punishing the evil, its entry will be beneficial for the development of DeFi. Users must be protected in order for this industry to grow sustainably. What is the biggest problem in DeFi today? I think it is the obvious crime and fraud being unpunished and unstopped. Tokenomics is effective in carrying out positive incentives, but often weak in implementing negative incentives or punishment. We know that human nature has a bad side. When doing bad things without getting punished, people will not fear and will keep on thinking about doing bad things. Without effective regulations, our DeFi planet would soon be dominated by rogue bullies.

Therefore, we should not worry about the negative influence of regulatory, because it is indispensable for the sustainable and healthy development of DeFi. Regulators themselves, of course, must view DeFi with an open mind and do not always apply the existing rules and regulations to the new industry and economy. After all, for the present competition among major countries, one can be very powerful in one field, but can also push talents, industries and capital to competitor, that would be a tragedy of the times. I am certain that our regulators will not make such a mistake.

This is the end of my fourth judgment.

All right, after introducing all four pieces of my judgments, this is the end for this lesson and for this entire course. Finally, on behalf of our group, I would like to offer you six suggestions.


First, understanding the nature, logic, meaning and value of DeFi. Do not think that as long as you can make money, you can be fine. If you do not fully understand the reason behind it, you would be confused and misguided by various phenomena and lose your direction. Only by true understanding can you have a clear direction, determination, perseverance, and the opportunity to achieve great success.

Second, practice. One must participate in DeFi in person, rather than merely focusing on the theories.

Third, discussion and communication. It is important to participate in community discussions and talk with the talents in the field. This will broaden your horizons and expand your thoughts.

Fourth, teamwork. A loner might be able to get the work done, but his progress would be relatively slow.  Finding a few friends and teaming up, they rapid progress will be made.

Fifth, vision. For those who want to start a business, they must prepare and lay out in advance, instead of pursuing hot issues and listening to others.

Sixth, also the most important, hard work. We all need to recognize that participating in DeFi is a process of learning, renewing, and improving one’s understanding and thinking. Never stop learning, even for one moment. In this industry, as long as you keep learning and apply what you have learnt, you will succeed sooner or later.

Well, now the course is done. I wish you all achieve great success and hope we can continue travelling together on the journey of DeFi and open finance. Thank you all!

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