Ethereum and Decentralized Finance rise again, a new wave of on-chain financial innovation is coming.

Recently, the Ethereum ecosystem and the DeFi field have once again become the focus of the market. Emerging protocols such as Pendle and Ethena have joined forces with established platforms like Aave to create new leverage amplifiers through cyclical lending mechanisms. Compared to the on-chain stacking model based on ETH during the DeFi summer of 2020, the current leverage growth curve supported by stablecoins like USDe is much more gradual.

Industry insiders believe that we may be entering a mild long cycle. The evaluation of on-chain protocols is mainly conducted from two aspects: first, involving a more diversified range of asset types, with expectations of increased external capital liquidity under the possibility of Federal Reserve interest rate cuts; second, exploring the limit of leverage multiples, focusing on the process of safely deleveraging, including how individuals can exit safely and the possible end of the bull market.

Core Protocol of the Crypto Ecosystem: Interaction between Ecology and Tokens

Although there are various on-chain protocols and asset types, according to the Pareto principle, we only need to focus on a few key indicators such as TVL, trading volume, and token price. Furthermore, we can concentrate on several core protocols that are vital to the on-chain ecosystem, examining their relationships within the ecological network to balance individual importance, ecological connectivity, and the high growth potential of new protocols.

Currently, Ethereum accounts for over 60% of the total locked value (TVL) in DeFi in July, which is (, and Aave also holds over 60% of the TVL within the Ethereum ecosystem. This is the key 20% in the Pareto principle. Other protocols must maintain close ties with these two to enter the core circle.

With the rise of the circular loan model, the correlation between Ethereum, Aave, Pendle, and Ethena has significantly increased. Together with Bitcoin, WBTC, ETH, and USDT/USDC form the foundational assets of DeFi. However, similar to Lido, USDT/USDC mainly possesses asset attributes, and its ecological value is relatively limited.

It is worth noting that different protocols may possess multiple values. For example, Bitcoin primarily reflects asset value, while ETH/Ethereum possesses both asset and ecological dual value. People not only need ETH but also the Ethereum network, EVM, and its extensive on-chain DeFi ecosystem.

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) The future direction of DeFi expansion

Aave, as the core of this round of lending boom, plays a leverage role in the entire system. It has become the closest existence to the on-chain infrastructure of Ethereum, which is not only due to its highest TVL but also the result of a comprehensive consideration of security and capital volume.

For emerging public chains and ecosystems, the safest way to launch a lending model is through a compliant fork of Aave. For example, Hyperlend, in its fork template, not only shares 10% of profits with Aave but also allocates 3.5% of its own tokens to the Aave DAO and 1% to stAave holders. This model allows Aave to sell itself as a service to various ecosystems, achieving a linkage between ecological value and token value.

However, competition still exists. Maple has expanded to HyperEVM, and new lending protocols like Fluid and Morpho are closely collaborating with new assets such as YBS. As a strong competitor in the Ethereum EVM ecosystem, the future development of HyperEVM is worth paying attention to.

Overall, the current Decentralized Finance ecosystem is undergoing an important transformation:

1. Pendle is expanding the types of assets that can be split, starting from fixed income and broadening the scope of the derivatives market.

2. Ethena, leveraging the decentralized finance (DeFi) circular loan model and treasury strategies, aims to create a third pole for stablecoins. USDe is expected to become a risk-free asset in the DeFi space.

3. Aave has become the de facto lending infrastructure, closely tied to Ethereum.

4. Bitcoin and Ethereum represent the limits of the blockchain economic system, and their level of expansion will determine the growth space of Decentralized Finance.

5. Hyperliquid/HyperEVM is closely integrated with existing DeFi giants in the ecosystem. Although its TVL is not as high as Solana's, the growth prospects are considerable.

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) Conclusion

The close connection between the core protocols of the crypto ecosystem has led to an exponential increase in the freedom and utilization of funds, benefiting the collective prosperity of the entire ecosystem. However, this high level of interconnection also means rapid transmission of risks.

The future development trend of the DeFi ecosystem may shift from being centered around Ether to being based on YBS (Yield Curve Stablecoin). Compared to the highly volatile Ether, YBS, represented by USDe, has natural price stability, which is expected to provide a more solid foundation for the DeFi ecosystem, making the process of leveraging and deleveraging smoother.

In this rapidly evolving crypto world, emerging protocols need to continually innovate and deeply integrate with the existing ecosystem in order to establish a foothold in the fiercely competitive market and earn a place for themselves.

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