DeFi Aggregation Theory
Critical Analysis of DeFi Value Chain Economics
TLDR; We showcase the need of an aggregator which is critical to mainstream DeFi adaption. Everyday users juggle with, multiple protocols to access numerous services and liquidity which is fragmented, bear the soaring gas cost and pay huge fee, by managing the value chain of DeFi ecosystem that is liquidity, services and demand a product can be called as DeFi aggregator in true sense.
Aggregation theory described by Ben Thompson in Sratchery fits into the framework of any company that aims to capture a broader market in any industry they operate, it says how companies dominate the industry in which they compete by simply controlling the value chain of any consumer market i.e. supply, distribution, and demand/users.
Examples of some of the companies which serve consumers globally and how they dominate by controlling the value chain :
- Google — At google, suppliers try hard to list themselves, and rank (SEO) on top. With a search engine, it does the distribution of web pages, and consumers (who are also its suppliers) have sticky behavior because of the ease of using google.
- Amazon — Previously book publishers, integrated editing, marketing, and distribution, but could not disrupt demand. Amazon publishing platform manages publishing, distribution using the Kindle-e-book store, and control demands with its customer service, which also applies to most of the other amazon businesses.
Aggregation Theory in Crypto Exchanges —
In the value chain of crypto exchanges — there are primarily three stakeholders :
- Suppliers — Liquidity providers act as suppliers and they keep their funds at CEX or in a wallet.
- Distributors — Exchanges distribute various services, using liquidity provided by suppliers. Services like trade, margin, loans, interest are dispensed by them.
- Demand — In crypto fulfilling demand means, providing excellent UI/UX, and customer service, bringing in new innovations, helping users trade efficiently, in short delivering a multifold experience, which results in a sticky behavior.
Comparison of CEX vs DEX Aggregators —
The key characteristic of Aggregators is that they own the user relationship. Critically, the user chooses this relationship because the aggregator offers a superior service. Centralized aggregator services dominate the major market by capturing the value chain efficiently. Here is a comparative table —
Need for a DeFi Aggregator —
DeFi investors deserve more than just an exchange enabling trade at best rates, and more than a protocol aggregator enabling access of services like lending, borrowing, loans, etc. As more value is locked in DeFi, users are looking for better solutions preferably similar to that of their counterpart CEXes, with simpler UI, low cost and accessing all financial services under one roof.
A comprehensive solution which fulfill all DeFi needs is the need of the hour, where users would be able to access liquidity, services, and experience innovation hands-on all under one roof.
Here are the three most important value chain of a DeFi Aggregator :
- Complete Access to DeFi Liquidity with DEX Aggregation.
- Ubiquitous Distribution of DeFi Services.
- #Buidl as per the community’s need and fulfil demand.
By controlling the value chain economics, DeFi aggregators cansurpass their centralized counterparts, like UniSwap did recently by surpassing daily trade volume to its centralize counterpart Coinbase.
You can reach out to the author of this post on aayushij@zeroswap.io
