On June 12, 2020, Binance invited Injective Labs co-founder and CEO, Eric Chen and BN Capital Senior Partner, Wayne Lin, for a discussion on TokenClub.
During this online event in Chinese, both Eric and Wayne were asked for their take on the current price trends of BTC, their personal stories on how they began their Bitcoin journeys and investments, and their opinion on investing in other mainstream coins, as well as altcoins. Furthermore, the pair talked about DeFi, as well as the impact of DeFi and its changes on the market, including the change in market value.
CEX v.s. DEX
Despite debates that CEX appears more reliable than DEX due to larger transaction volume, Eric explained how the two systems will ultimately converge and be complementary to each other. He says that projects in the DeFi world place more emphasis on flexibility and creativity. DeFi is still in an experimental phase in which there is a huge plethora of products being created and the value these products present is opening and creating new doorways and opportunities. The growth opportunities are endless in the DeFi space. For example, as many blockchain infrastructures mature, DeFi would be able to take platforms to the next level and capture a wider range of users. The innovation is only beginning in the DeFi space and is expected to keep coming as new products enter the field.
For more information on how Injective Protocol plans to bridge the gap between CeFi and DeFi, check out this article: https://medium.com/injective-labs/injective-protocol-bridging-the-gap-between-cefi-and-defi-95fd7681013e
Overall Market Value of DeFi
Wayne believes that the current total DeFi market size is still relatively small, and in the future, we will gradually see projects entering and boosting the overall digital asset capacity exponentially. He also stated that the relevant infrastructure is being built in correspondence to the path that traditional finance took.
Most DeFi participants are testing the waters, and once the industry develops and matures, DeFi has the potential to multiply the total market cap of digital assets by 10 times. The full potential of DeFi relies on the scaling of the Ethereum network. It is still too early to estimate and quantify for certain what the exact capacity of DeFi will be, but the potential of ten to a hundred times the current market cap is there without a doubt.
With Layer 2 technology gradually improving and becoming popular, the speed of transactions will greatly increase thus making the user experience much better. A transaction on a Layer 1 DEX takes on average 15 seconds to complete, which is based on the average block production rate of Ethereum. Because of this, each transaction takes a longer time to process, hindering the user experience. By contrast, operating on Layer 2 provides, theoretically, 1800 times the transaction speed of Ethereum. Placing or canceling an order will take less than one second, as opposed to minutes, thus opening the doors to many trading needs.
Assessing Investment Risk in Crypto Assets
When asked about the price of Bitcoin towards the end of 2020, both had relatively optimistic opinions. Eric pointed out that the market has been in a volatile state for a long time until recently as most price actions driven by spot markets instead of derivatives markets. Wayne highlighted the importance of evaluating macro factors, including the rapid development of various technologies that stimulate changes in the standard operation of many industries. He believes that the global financial markets will gradually recover from the current condition and have a healthy rebound and organic growth following.
At the end of the day, research and due diligence are the keys to making sound investment decisions. To elaborate, he said that he has “been telling people around me that current crypto assets have intrinsic high volatility, and leveraged trading brings additional and exponentially higher risks. ” That being said, he does not discourage trading speculatively with futures and other products, but rather he emphasizes acquiring the necessary knowledge and strategies before making trades or investments. Using traditional finance as an example, qualification, certification, and financial capacity are required in order for someone to use highly leveraged tools. On top of that, having a solid grasp on his or her own disposable fund management or planning, risk preferences, expected profit and loss, and fundamental financial knowledge are all crucial for making such investments.
When it comes to addressing doubts on DEXes from an investor’s standpoint, the pair pointed out the need to understand the underperformance of current DEXes and the fundamental elements, such as lack of liquidity, less-than-usable user experiences, or poorly diversified trading markets. For retail investors evaluating a DeFi project or product, Eric suggested to look out for credible security reviewers to avoid low-level vulnerabilities, as well as to pay attention to the financial design and robustness of the protocol. He also pointed out that it is possible to judge market sentiment towards the project/product from the liquidity of the platform.
For the original version of this discussion in Chinese, please visit this link https://mp.weixin.qq.com/s/7D6vRaUjFjsO01VoE8wmSQ
Injective is the first cross-chain protocol built for decentralized finance applications. On the Injective exchange, anyone can access, create, and trade unlimited DeFi markets such as futures and perpetuals. Developers can also build cross-chain Ethereum-compatible projects that are lightning fast and achieve instant transaction finality. Injective is backed by a prominent group of stakeholders including Binance, Pantera Capital and Mark Cuban.