[Article #1] Crafting the Core of Project Dragon’s DeFi Ecosystem
Note
On January 16, Klaytn Foundation and Finschia Foundation proposed to merge our technology, user bases, and resources to build the largest blockchain in Asia. This post is part of a series of communications to help both our communities understand our strategy and intent behind the merge proposal, in order to facilitate informed discussions that we will be actively listening to leading up to the governance vote.
This post is divided into three main sections:
● DeFi as the Pillar for our Digital Application Infrastructure details the rationale behind our DeFi strategy;
● The DeFi Endgame highlights our vision of what we will be aiming to build for Project Dragon’s DeFi ecosystem; and
● Leading The Wave showcases Project Dragon’s potential for growth and how we can seize dominance in Asia’s emerging DeFi ecosystem.
To enable the realization of our strategy, we will be introducing the Dragon DeFi Initiative (D2I) to build a strong DeFi ecosystem for Project Dragon. Leveraging Klaytn and Finschia’s many years of mainnet operation experience and our combined user base which is the largest among Asia-based blockchains, this incentive program is designed to create an ecosystem dominated by DApps with structures that can be synergized with other services and DApps that have value as real financial instruments. For more details on the incentive program, please refer to the full Dragon DeFi Initiative (D2I) Proposal.
DeFi as the Pillar for our Digital Application Infrastructure
The blockchain market is expected to explode in 2024 as the integration of virtual assets into the institutional system accelerates. In order to ride this wave and grow into a global blockchain network, the DeFi ecosystem, which serves as the network’s infrastructure, must be in place.
In the real world, economic activities occurred first based on social infrastructure such as national infrastructure, and natural infrastructure such as the natural environment. Only then was financial infrastructure created to provide capital borrowing to maximize the impact of economic activities, serving as a catalyst for economic growth.
However, based on the precedents so far, we can see that this order of development does not apply in the blockchain world. Globally recognized networks such as Ethereum, Arbitrum, Optimism, BNB, and Solana have all seen the financial infrastructure of DeFi take hold first, with features such as capital borrowing, token swaps, and reward structure design enabling DApps from various sectors to increase their circulation and establish themselves on-chain.
In other words, the roles have been reversed in the blockchain world, and a robust DeFi ecosystem must be in place for digital production to accumulate on the network. As such, the two foundations will focus on building the financial infrastructure to enable DApps to produce on our merged chain, and actively supporting builders in this process.
The DeFi Endgame
Current Landscape
The liquidity mining (LM)-centric blockchain ecosystem that began with the DeFi Summer of 2020 saw TVL surge from $1B to $170B by the end of 2021, but from mid-2022, the bubble burst due to over-leveraging, and deleveraging brought down the LM-dependent ecosystem.
During this period, some DApps failed because they could not create synergy between services despite adopting LM, while other DApps survived by improving their BM (Business Model). Post-bubble, DApps fell into three broad categories:
● (A): DApps that adopted LM but failed to create synergy with other services.
● (B): DApps that adopted LM but failed to synergize with other services and survived.
● (C): DApps that did not rely on the LM structure but improved their BM and increased their value as real financial products.
The Klaytn DeFi ecosystem also saw the growth of LM-based DApps during the DeFi Summer, but the closed operating policies of some DAppsput a brake on growth, and as a result, the ecosystem as a whole stalled, resulting in an ecosystem centered on (A), which collapsed in 2022 with a sharp drop in TVL during the on-chain bubble burst and deleveraging process.
Project Dragon DeFi Landscape
In order for DeFi programmable money ecosystems such as Ethereum, Arbitrum, and Optimism to be firmly established, it is necessary to improve asset accessibility, create an environment for the growth of new DApps, create a currency multiplier effect, and safely move external funds. Such an ecosystem is built around DApps of types (B) and (C).
The first step in this effort will be the aforementioned Dragon Defi Initiative (D2I). This program will lay the foundation for the creation of Project Dragon’s DeFi ecosystem, prioritizing the discovery of DApps that are characterized as public infrastructure such as DEXes and lending protocols among the core infrastructures. However, DApps that adopt innovative structures such as Onchain Orderbook, Hybrid DEX (Orderbook + AMM), and other existing ecosystem participants that meet all the requirements will also be included in the DIP.
In addition, we anticipate that each layer will eventually include the following DApps to create a more diverse ecosystem:
DEX
- CLAMM (Concentrated Liquidity AMM) — Current Priority
- Weighted Pools — Current Priority
- Stableswaps — Current Priority
- Onchain Orderbook
- Hybrid DEX(Orderbook + AMM)
Lending
- Legacy Lending (e.g. Aave, Compound) — Current Priority
- Risk-Isolated Lending (e.g. Silo Finance) — Current Priority
Asset Layer
- Native Coin, Dapp Tokens, RWA tokens, LSTs, Stablecoins, bridged tokens
Gov. Aggregator
- Gov. Efficiency Booster + Liquid Wrapper (e.g. Aura, Convex)
- Bribe Market (e.g. Votium, Hidden Hand)
Derivatives
- Perp DEX (e.g. Hyperliquid, Vertex)
- Tick-based Options(e.g. Dopex v2, InfinityPools)
Yield Aggregator
- Yield Compounding (e.g. Beefy)
- Onchain Asset Management (e.g. Gearbox, Yearn, Sommelier)
LSDfi
- Yield-Stripping Derivatives (e.g. Pendle)
- CDP (e.g. Lybra, Raft)
- LSD ETF (e.g. unshETH)
Swap Aggregator
- Onchain Aggregator (e.g. 1inch, Swapscanner)
- Intent-based Swaps (e.g. CoW Swap, Uniswap X)
Bridge
- Legacy Bridge (e.g. Wormhole, Synapse)
- Restaking Bridge
Leading the Wave
Both Klaytn and Finschia have many years of mainnet operation experience, as well as the capabilities of mature networks in terms of chain size, core team technical skills, and Web3 resources. Post-merge, we will also have the largest user base among Asia-based blockchains, giving our DeFi ecosystem explosive growth potential.
Klaytn
- Accumulated Tx Volume : $376B
- Web3 Wallets Users : 29M+
- Community : 240k+
- KLAY Mcap : $673M+
- ATH Onchain TVL : $1B+
- Strong Presence in Korea, Singapore, and Vietnam
Finschia
- Web 3 Wallet Users : 5.6M+
- Community : 170k+
- Finschia Mcap : $213M+
- Strong Presence in Japan, Taiwan, Thailand, and Abu Dhabi
To capture this opportunity, we will build a stable and robust DeFi ecosystem by leveraging Klaytn’s DeFi know-how with the development direction and strategies of the DEX that Finschia is preparing. Furthermore, based on the builders and user bases that Klaytn and Finschia have established, we will create practical collaboration cases with various financial partners in Asia. Our combined technology, user base, network, and know-how will give Project Dragon a headstart with strengths that other networks cannot provide.
Additionally, as one of the few blockchain networks with a robust financial infrastructure, where economic activity occurs on-chain and digital outputs can be consumed by a large number of users as they are generated, the projects that were originally planned to be launched on Finschia will quickly evolve on the merged chain with more users and a larger DeFi ecosystem.
Both foundations are committed to working closely with builders designing financial infrastructure to prepare a new merged ecosystem that supports both EVM and Cosmwasm, and to creating an open incentive program for a wide range of builders to participate.
