Zee Prime Founding Partner: Disappointed by DeFi's Pseudo-Innovation, Destroys More Value Than It Creates
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Zee Prime Founding Partner: Disappointed by DeFi's Pseudo-Innovation, Destroys More Value Than It Creates
The next important step for DeFi is to get closer to end users and real businesses, rather than staying within the ecosystem's liquidity mining and speculation.
Navigating Web3 tides with focused insightsAuthor: fiskantes.lens
Translation: TechFlow
Zee Prime is a crypto VC firm, and its founding partner @Fiskantes recently expressed public disappointment and concern about the current state of the DeFi market on Twitter, arguing that most recent innovations in DeFi lack practical significance. This doesn't seem to be mere FUD, but rather an invitation to reflect more deeply on what DeFi truly needs.
I’ve wanted to write this article for a while—hopefully marking a cyclical bottom for DeFi. But over the past few months, I’ve grown increasingly disappointed with the state of DeFi—not because I’m bearish on tokens, but because I feel it’s destroying more value than it’s creating:
Real innovation in DeFi happened four years ago:
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Permissionless exchange and liquidity bootstrapping (Uniswap)
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Simple money markets enabling permissionless lending, borrowing, and leveraged trading (Compound, Aave)
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Globally accessible, dollar-pegged stablecoins with reasonable liquidity (USDT)
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Leveraged and synthetic trading (Synthetix, DyDx).
With very few exceptions, everything else has merely been derivative of these innovations. Parameters and incentives may vary, but at their core, they remain derivatives. Experimentation isn’t wrong—but genuine innovation has been rare.
We’ve hit an innovation dead end, stuck within the current DeFi paradigm—focused on improving Uniswap or building a slightly better stablecoin than USDT with fancy mechanisms and incentives.
In doing so, we’re increasing systemic risk across the entire DeFi ecosystem.
Because these new DeFi protocols keep re-mortgaging and draining each other, layering new code onto already complex systems, adding complexity and tail risk—without meaningfully improving utility for end users, let alone introducing anything truly novel.
Clearly, tweaking parameters and adding new incentives is much easier than acquiring real users. I believe the technical side of DeFi isn’t particularly hard—building a DEX similar to Uniswap is far easier than actually attracting users.
Moreover, let’s admit it—even DeFi 1.0 had serious flaws. The recent incident where Curve’s founder needed an OTC bailout from a private entity to avoid collapse, because he essentially used Aave as exit liquidity, speaks volumes.
And yet, we keep piling on strange incentives and growing complexity. I believe every time we add another liquidity mining scheme, the systemic risk of the entire system increases almost exponentially (as risks compound), while newly created value grows at best linearly.
At this point, I’m starting to believe that for people who genuinely need the benefits of DeFi, USDT on Tron matters more than 99.9% of DeFi protocols—including blue-chip ones.
Another trend we’ll see is large players, already established in those four verticals, fighting fiercely for the remaining market share.
Uniswap is openly devouring share from every other DEX while also attempting to integrate NFT markets and wallets. Curve and Aave are trying to launch their own stablecoins. Others, like Frax, are attempting to do everything at once...
Only Tether seems completely indifferent.
Note: Clearly, there are still some interesting innovations happening—such as Olympus’ vision of bootstrapping non-pegged but stable assets (though whether the market truly needs such a thing remains to be seen). And I’m not endorsing USDT or Tron—they come with significant opacity, founder-related, and centralization risks. However, they better reflect what people with real problems actually need, compared to what we currently call DeFi.
The next meaningful step for DeFi is moving closer to end users and real-world businesses—not endless in-circles liquidity mining and speculation. That is DeFi’s ultimate challenge—not figuring out how to make LPs 10% more efficient or aggregating LSDs to boost yields by 1.5%.
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