Does FinNexus Have Competitors?
The emerging DeFi system does not yet have much zero-sum competition. Collaboration is the DeFi ethos.
A member of the FinNexus community posited this question after the recent announcement of our upcoming innovative token distribution model on Bitrue exchange. FinNexus co-founder Ryan Tian and I thought it would be nice if we could write up a more thorough answer, as the question is a good one and deserves a proper response. The result of that analysis is presented in this post.
A Short Introduction to DeFI
The concept of decentralized finance, or DeFi for short, has only been around since the launch of the MakerDAO project. Although the project had been incubated since 2014, the release of the MKR formal whitepaper did not occur until December 2017. The first issuance of their DAI stablecoin, which are essentially tokenized US dollars backed by Ethereum, occurred at that time as well. Today there are almost 50 million DAI in circulation and there are often months where DAI volume exceeds $1 billion per month.
Those statistics still underscore that the DeFi industry, as a whole, is really young. But even though it is still a newborn, it has already seen some tremendous development. According to DeFi Pulse, the total value of assets locked up in various DeFi platforms, almost all of which are currently on the Ethereum blockchain, recently crossed $1 billion, which represents a 350-plus percent growth rate compared to the year prior. Aside from the $8 million worth of BTC or so that are locked up in state channels on Bitcoin’s Lightning Network, all of that growth is on Ethereum. Thus, it may be more accurate to describe the current state of the decentralized finance ecosystem as EthFi rather than DeFi.
ETH Money Legos
When you think about decentralized finance, at least in the purely EthFi sense that it exists in today, the most powerful concept that portends a long runway of exponential growth is the idea of composability or “Money Legos.” It is this trait that allows decentralized financial protocols to be stacked, one upon another, in ways that are unimagined by the original protocol creators. Unfortunately, it is also this trait that led to the recent bZx exploits, but that might just be the price we as an industry have to pay for trying to create an alternative global financial system.
The most incredible advantage of composability is that it enables exponential growth. This feature of financial protocol innovation unleashes the true power of network effects. In a recent piece by David Hoffman in the unparalleled Bankless Substack newsletter, the case for “Ether as a new model for money” is made. And it’s pretty convincing. Among some of the great images shared in that article, to me, the most impressive is this chart comparing the growth of ARPANET in 1969 to Ethereum-based DeFi in 2019 — 50 years apart and a remarkably similar trajectory.
DeFi Cannot Live Solely on Ethereum Forever
At FinNexus, we tend to refer to the other DeFi projects as our “brother” projects rather than competitors because, in reality, we’re all in this together to construct a more inclusive global financial system. Our perspective is a little different, however, from some of the hardcore EthFi projects. As I have stated previously in a FinNexus post, traditional finance, or TradFi, has hundreds of trillions of dollars worth of value locked up in it, while EthFi currently just has around $1 billion. The legacy finance system has so many varieties of assets, together with all kinds of financial instruments and models, it is safe to say that even if there was a ton of competition out there, it would hardly matter. The opportunity is just that big.
Although we do not have any direct competitors for the specific business model that FinNexus is now working on, we have witnessed a number of projects that are working in a similar direction as FinNexus. Projects like RealT (led by the aforementioned David Hoffman), Konkrete, Maple Finance, DMMDAO, and others are working on tokenization models in their own way. But all of these projects are on Ethereum.
To return to the question at the beginning of this post, do we see any similar competitors for FinNexus? No, not really. Here’s why. At FinNexus, we firmly believe that decentralized finance will not solely exist on the Ethereum blockchain. While we admire and are greatly supportive of all the great projects in the EthFi ecosystem, we see interoperability as one of the essential properties of DeFi. It’s in our Wanchain DNA. We see the FinNexus project as one of the foundational pieces of the future suite of interoperable DeFi protocol “legos” that will exist across not only multiple blockchains (we’ll be working with Wanchain and the XRP Ledger initially but not exclusively) but also legacy financial systems as well.
We are creating a new world of finance. Let’s do it together!
FinNexus is the open finance protocol built on the Wanchain blockchain. It is a hub for connecting different decentralized ledgers to each other and users, and also for connecting with traditional finance applications. The first iteration of FinNexus will be a marketplace for hybrid decentralized and traditional financial products.