Why DeFi Lend/Borrow will be Huge in 2025 - TOKEN2049 Singapore 2024

hey everyone so uh I'm going to be talking a little bit about lend borrow um and I think that there's some key trends that are coming up over the next year which are going to mean that we're going to see a substantial increase in the amount of Lenor that's happening within crypto um just to put it in perspective uh lamboro is essentially the foundation of the financial system there is about 250 trillion dollars of assets uh that are being lent out or borrowed against within the traditional Financial system and about 50 billion dollars uh within defi um and that's been growing uh steadily over the last couple of years um and one of the big reasons for that is it's critical for market enablement so when people are uh lending out their crypto assets within things like arve or maple on the back of that people like Market mapers people like Prime Brokers people like OTC desks are using this as a key part of their strategy which is providing real yields to people one of the few areas that is consistently providing real yields within defi uh and we're seeing an increasing interest in institutions getting access to these markets as well so there are four sort of key trends that I see over the next year um the first is institutional adoption second is an increas in composability between applications the third is cross chain liquidity and the fourth is is the adoption of real world assets increasingly within lend borrow platforms one of the interesting Trends that's been happening over the sort of past two or three years is actually around 60 to 70% of value within crypto both in terms of trading flow and in terms of assets under management is now held within institutional Capital um that change uh is increasingly marked from which kind of protocols that are launching are being successful uh you're seeing an increase number of applications things like um clearpool uh and other applications that are launching on top of layer ones which are very much focused essentially almost entirely towards the institutional Market things like Maple Finance uh and these lend borrow platforms are growing quickly by focusing in on these markets because this is where more and more of the money is moving through another part of uh defi that is critical is this composability between applications if you're a institution or an individual and you go to something like coinbase or you go to something like uh lendon you only have one product that's available to you if you want to be able to lend or borrow or maybe two you have trading and you have the ability to get margin however within defi you also have the ability to compose together these applications and be able to access a larger number of products things like Pendle which allows you to take staked assets and strip out the staking yield from the underlying things like Ono things like Athena is increasingly being able to take your lend borrow position in something like arve and use that as collateral against another position in another weat web 3 defi application that composability is very everyday for people who are already in web 3 but is something that institutional investors are increasingly looking at as a way of increasing their Capital efficiency and getting access to M increased Alpha that they're able to get within centralized venues another key part um of the over the next year is going to be the increasing importance of cross-chain liquidity as we've had uh the launch of more l2s like Bas like optimism uh and we're seeing more and more ecosystems that are um uh having liquidity fractured within them the increasing importance of things like layer zero of things like wormal of things like axar and Thor swap to aggregate liquidity across multiple venues uh is going to increase the is going to be increasingly important to allow these various liquidity pools to be stitched together the last thing that I think is is critical here is the real world assets being used as collateral um there's been a number of real world assets that have been brought to the Ledger most common one at the moment is uh tokenized uh treasury bill products like uh Mountain protocol um but you're also seeing more property being tokenized on Ledger you're seeing more bonds being tokenized on Ledger but a key unlock for this is actually going to be able to use this as collateral within defi right now most of these tokens are not being used as collateral within defi which means that there are hundreds of millions of dollars of potential assets that actually are not being very liquid within the market there's a couple of things that I think are really important in terms of um how these returns are able to be leveraged once you have the ability to use them as collateral for Len borrow something like a 2% yield or a 3% yield or a 5% yield can actually be leveraged up via these things called yield Loops uh an example of a yield Loop within arv is taking ethereum pledging it as collateral taking out usdc swapping that usdc for ethereum putting that back into RV borrowing more usdc swapping it for ethereum putting that back into RV and that actually creates a leverage spot position that substantially increases the alpha of both the upside and the downside but if you look at it in comparison to something like perpetuals the funding rates are actually a lot more competitive in many examples of this than you would on something like a uh per leverag perpetuals position you also seeing this for leveraged yield products such as Ste where you do the same thing you take your ethereum you turn it into stake ethereum you put it into AA you borrow that to you use that to borrow ethereum you put that into stakes ethereum and you put that into RV and you keep looping it round and you can turn maybe a 2 or 3% % yield into 15 20 25% yield on the end State uh again these kind of Leverage products are super interesting to some of the more racy ends of the financial sector and the more that we're able to create liquidity in the collateral assets the more that we're able to offer these products out to the institutions as well the last thing that I think is really interesting as a key Trend Within These Len borrow platforms is the emergence of stable coins issued by Len borrow platforms um one of the big problems that we've seen in Market with uh centralized stable coins is uh when a centralized stable coin goes wrong like usdc did with the dpeg event liquidity almost instantaneously dries up uh and what happens in response to that is decentralized stable coins take a central seat uh at the table so while centralized stable coins are incredibly Capital efficient decentralized stable coins are increasingly being used as a ballast within defi to um counter shock events that can occur against decentralized stable coins so we're seeing the emergence of stable coins like gho issued by arve D issued by maker Dow uh which allow you to Mint them on demand in a scalable way without having to rely on a centralized counterparty um this means that you can take your collateral position in a large number of assets and turn it into a stable coin which you can then go and use within Defi and use within defi Primitives uh and this is actually actually removing a bunch of the liquidity constraints that you're seeing within the defi market and are going to be increasingly important uh through 2025 so what's next for lend borrow in 2025 first of all institutional lend borrow will increasingly dominate expansion of real world assets rise of fixed rate borrowing aggressive lend leverage against yield bearing assets and the return of the defi savings account these are my five predictions for 2025 so first of all I've already covered this institutions are already 60 to 70% of flow that's going to increase in the LM Bor Market over 2025 and it's going to increasingly be within defi the second is real world assets tokenized bonds real estate and other ass real world assets will expand as collateral types and part of the stable coin Wars that we're going to see in 2025 are going to be around their ability to be used against Real World asset collateral the rise of fixed rate lending interestingly in the crypto markets the majority of lending is variable rate um so if you look at RV you have variable rate pools if you look at compound you have variable rate pools and this is very easy to do in a defi specific way but actually the majority of lending within the traditional financial sector is in fixed rates lending uh and so in 2025 you're going to see an increased number of Protocols of offering fixed and variable rate lending uh across the space to complement and start to eat into the business that is modeled of centralized venues that are doing lend borrow within crypto you're also going to see more aggressive leverage strategies being offered within the defi space to leverage up these yield bearing assets so as you get more leveraged products against things like Mountain protocol against things like Athena against other things that have a yield associated with them that Leverage is going to turn 5 to 10% yields into 20 to 30% yields and those leverage products are going to be increasingly popular as we see a bull market uh return to the crypto space the last thing I think that's going to be really crypto critical for the crypto space is going to be the return of the defi savings accounts um I think that Tera Luna put us back by about five uh years uh when teral Luna collapsed but one of the things that was most interesting about the teral Luna Rise was its Key Driving Force was the 20% return on anchor that was available to retail so this ability to be able to take stable coins deposit it into an account that then gave 20% return on Stables that was one of the biggest drivers of new users into crypto in the space period that we have had for web 3 uh and I think over the course of the next year you're going to in see an increased focus on defi style savings products for consumers because it is such a simple product to understand and as the crypto Market starts to expand again and there's more trading in crypto that more trading in crypto is going to lead to more lend borrow which is going to more lead to more yield that greater yield is going to lead to more of peeling Len borrow um uh products that can be built on the back of that which will then lead to the ability to offer savings accounts to Everyday People now obviously um I'm I'm bullish on web 3 being the main way that everyday people access crypto and I think that sustainable yields are the only way of doing that properly it needs to be based on something that isn't is isn't essentially a Ponzi scheme underpinning it and this ability to be able to provide greater and greater yield via sustainable lend borrow platforms I think is probably our best bet to be be be able to provide inter disintermediated consumer savings products to Everyday People that actually provide real yield on cash so in 2025 we're going to see a new wave of lend borrow it's going to be led by institutions but it is going to enable more defi friendly retail savings products and we're going to see an increasing amount of real world assets not just being tokenized but being put into Len Bor platforms to unlock Capital which in turn will increase yield available which will make the Lend borrow space appealing again to retail investors from the point of view of savings accounts so ultimately the next year is not just going to be retail powering retail but is going to be institutional yield powering retail adoption thank you very much for your time everyone