Opinion | Analyzing the DeFi World from an Aggregator's Perspective
TechFlow Selected TechFlow Selected
Opinion | Analyzing the DeFi World from an Aggregator's Perspective
The first platform to become a "DeFi aggregator" will monopolize the entire market. When a sufficiently good tool emerges early and gains recognition, it becomes the next Metamask.
Navigating Web3 tides with focused insightsRecently, we've been thinking about how the DeFi space might evolve and align with broader trends in the tech industry.
On Stratechery, Ben Thompson uses his "aggregation theory" to distinguish between platform companies and "aggregators."
Platform companies like Shopify and Substack provide interfaces or technical solutions that enable third parties to connect with end users. Substack helps authors connect with readers and takes a 10% cut of the author's revenue. Shopify connects sellers with buyers, charging sellers a monthly subscription fee plus optional value-added services (payments, credit lines, etc.).
Ultimately, it's up to the authors and sellers themselves to acquire users and generate revenue.
Aggregators are companies like Google and Facebook that act as intermediaries between third parties and users. While this model is highly simplified, Facebook and Google capture vast amounts of user data, which they monetize through advertising. In many cases, media or travel companies don't own customer relationships and must pay Google or Facebook for promotion.
If you're planning a trip to Tokyo, you're more likely to search on Google than Expedia. As a result, in 2019 Expedia spent $6.03 billion on sales and marketing, mostly on Google ads.
In the CeFi ("centralized finance") sector of the crypto industry, Binance resembles an "aggregator" like Google or Facebook. With 15 million users, Binance is the largest distributor in the cryptocurrency space and earns significant revenue from suppliers—projects that want to list their tokens on Binance.
Project teams (suppliers) pay Binance in various ways, including listing fees, IEO revenue sharing, and advertising (airdrops and promotions). These teams are willing to pay because they can't reach such a broad user base independently. Being listed on Binance also confers legitimacy, as users assume Binance has already conducted due diligence on these projects.
Binance has deep roots in the crypto industry, a strong brand image, massive user acquisition, and high maturity. Therefore, even though Binance is slower than its competitors in launching new listings—often listing tokens later than other exchanges, entering the perpetual futures market late, and only recently offering options (still only single-sided options)—its products still attract a large user base.
Now applying aggregation theory to DeFi, we find the DeFi ecosystem primarily consists of three groups:
-
Protocols (third parties): Compound, dYdX, Maker/DSR, CurveFi, Uniswap
-
Platforms: Zerion, InstaDapp, Argent
-
An emerging set of aggregators: Ray, CurveFi, 1inch.exchange, dex.blue, unspent.io
To use a now-cliché analogy, DeFi is still in the "early internet era." Very few pioneers have successfully aggregated all services into one seamless experience. For example, Compound has more direct users than most platforms and aggregator service providers.
Existing aggregators don't fully meet Ben Thompson's definition, but if you look closely, you can spot early signs.
Opportunity
We believe there’s an opportunity for existing UI/UX-focused neutral platforms like Zerion, InstaDapp, Argent—or perhaps an entirely new company—to build an interface that simplifies the DeFi experience and, in doing so, evolves into a mature aggregator.
In the crypto industry, current aggregators are still not simple enough to use. Unlike tech industry aggregators, they aggregate only providers, not users.
To some extent, crypto wallets are beginning to play the role of user aggregators. For instance, Trust Wallet stores assets, offers limited trading and staking features, and connects to other apps via WalletConnect. However, it's well known that crypto wallets aren’t profitable.
The first platform to become a "DeFi aggregator" will likely dominate the market. Once a sufficiently good tool gains traction and recognition, it becomes indispensable—like today's MetaMask. Every DeFi project must ensure users can access their product via MetaMask. If a project’s website lacks a “Connect with MetaMask” option, it appears unreliable.
How can a DeFi project become an aggregator? We suggest two paths:
Path 1
Transform the DeFi platform into a "trusted marketplace" or app store that enables user participation in DeFi. Additionally, the platform should endorse the protocols it supports, signaling to users that it has done its best to verify code legitimacy and conduct audits.
Amazon uses a similar approach by aggregating third-party sellers, charging them a monthly subscription fee plus a commission on each transaction.
It’s undeniable that DeFi platforms would struggle to charge protocols (the "sellers") a recurring monthly fee (how would you charge a platform like Compound?), but alternative monetization methods exist.
Perhaps DeFi platforms could charge fees to new products seeking to launch on their platform (before full decentralization)? Many new DeFi applications compete for user attention. Gaining support from a major platform offers significant marketing advantages for new apps.
Another example is Salesforce. After capturing users, Salesforce helps other companies integrate their services into its ecosystem via AppExchange. AppExchange charges a one-time listing fee (to cover security review costs) and takes a revenue share from earnings generated through the platform.
Therefore, a DeFi aggregator with a large user base should offer APIs and SDKs to allow other DeFi protocols to integrate seamlessly.
Path 2
The above suggestion raises a scale issue. Will DeFi applications be as numerous as third-party sellers on Amazon or third-party services on Salesforce? Probably not. One way platforms can address this is by adopting a "freemium" model.
By inserting an intermediary smart contract between users and the actual protocols, DeFi platforms can take a small cut of transaction revenues or charge a minor basis points (bps) fee. Users can view this as a "convenience fee."
At the same time, the platform could offer a "pro version" (e.g., charging $500/month) without convenience fees, featuring enhanced functionality and scalability (e.g., pro users could integrate new products directly via the platform's UI).
Such pro tools may resemble prime brokerage services tailored for institutional clients. Prime brokerage isn't a precisely defined term, but in traditional finance, it refers to a bundle of financial services banks provide to hedge funds, including leveraged trading or shorting via lending, trade execution, cash management, capital introduction, consulting, and more.
In the CeFi sector of the crypto industry, companies building prime brokerage services (e.g., Tagomi) created a buzz, but most failed. Here’s why:
-
In traditional markets, hedge funds almost cannot raise capital from institutional investors without a prime broker—but this isn't true in crypto, resulting in lower overall demand.
-
Excess returns in crypto often come from exploiting weak exchange infrastructure, so capital prefers direct access to all platforms.
-
Prime brokers still can't offer lending services to their clients (many consider this the most important feature).
-
Even when prime brokers offer margin trading via their UI, hedge funds must post collateral separately on each exchange (e.g., collateral locked on Huobi isn't recognized by OKEx).
Here, DeFi aggregators can help by linking borrowing (via Compound or Aave) with trading. This effectively means market makers borrow from one platform and lend on another (similar to CeFi prime brokers), but it creates a unified trading experience akin to traditional prime brokerage.
Aggregators could also consider launching their own CeFi or P2P lending services to attract more customers, or even create private-label brands like AmazonBasics.
Ultimately, a fully vertically integrated aggregator could lead to a "winner-takes-all" outcome, streamlining user experience while accumulating value.
What are the benefits?
The advantage of these platform aggregators is expanding DeFi’s reach. The initial cost for users trying DeFi applications is very high. Even for seasoned crypto veterans, these platforms can be difficult to navigate.
A new aggregator with a friendly UI that abstracts away complexity could bring many new users into DeFi, much like Coinbase did at the end of 2017.
Many first-time DeFi users are intimidated when they try it out. Imagine a regular person sees on Twitter that they can earn 8% APY from a DeFi product. They look into it and realize they first need to convert USD into stablecoins, then create a wallet on another site before actually purchasing the DeFi product. What do you think their reaction would be?
There's ample room for improvement in DeFi. We can enhance the user experience at the platform/aggregator layer, allowing DeFi protocols to continue focusing on technical improvements and security.
What are the drawbacks?
Everything comes with risks. If you're using Instadapp (which uses dex.blue to execute trades on Uniswap), you’re effectively skipping three layers in the transaction process (and multiple smart contracts). The higher the abstraction, the harder it becomes for users to understand what they're using. In a nascent industry prone to hacks, such opaque security is dangerous. When building attack-resistant protocols, simplicity is paramount.
The more layers between users and their funds, the greater the risk of security vulnerabilities. Additionally, as systems grow increasingly complex and interconnected, it becomes harder for aggregators to audit the entire ecosystem. Combining multiple DeFi applications reduces security—BZX’s hack is a perfect example.
Take a trade on 1inch exchanging DAI for USDT. The fund flow looks like this:
-
User sends DAI to 1inch
-
1inch sends DAI to curve.fi pool 1
-
curve.fi pool 1 deposits DAI into iearn.finance
-
iearn.finance sends USDT to curve.fi pool 2
-
curve.fi pool 2 sends USDT to 1inch
-
1inch sends USDT to the user
In this process, two risks stand out:
First, a hacker who compromises iearn.finance could potentially steal funds from users who allowed the 1inch smart contract to transfer their ERC20 tokens, since 1inch allows curve.fi to move its tokens, and curve.fi allows iearn.finance to move its tokens. Users might not even know iearn.finance exists.
Second, under Ethereum’s current form, gas costs make aggregation extremely expensive. For example, the fee for this 1inch transaction approaches $10. If the traded token value reaches thousands of dollars, a $10 fee is negligible, but for small transactions, this is abnormal. Currently, executing a DAI/USDT trade via 1inch and CurveFi requires six times more gas (5.13 USD vs. 0.855 USD) than using Uniswap directly.
Conclusion
Still, there's hope for DeFi aggregators. We can improve user experience in various ways and reduce the difficulty of monetization by increasing centralization. But this often contradicts the original ethos of the teams building these decentralized projects. Over the next few years, one of the most interesting challenges will be balancing sustainable business models with the preservation of decentralization.
(End)
Original link: https://insights.deribit.com/market-research/aggregation-theory-applied-to-defi/
Authors: Ryan Rodenbaugh & Baptiste Vauthey
Translation & Proofreading: Min Min & Ajian
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
