New Blockchains Emerge as DeFi Faces Sustainability Challenges
New blockchains like BeraChain, TON, and Plume are driving growth in DeFi through attractive incentives reminiscent of 2021's yield farming. However, sustainability remains a concern as these chains face challenges in building lasting ecosystems beyond initial rewards.
Key Challenges in Capital Formation
- Excess Blockchains: Numerous new chains exist, but only a few protocols achieve traction, leading to fragmentation.
- Lack of New Investors: Difficult onboarding processes limit the influx of new participants into DeFi.
- TVL Fragmentation: Increased chains dilute capital across too many platforms rather than fostering growth.
- Institutional Barriers: Many blockchains lack infrastructure necessary for institutional capital, hampering liquidity.
- Market Inefficiencies: Poorly configured protocols often benefit insiders at the expense of long-term value creation.
Building Beyond Incentives
- Real Ecosystem Utility: Successful ecosystems require intrinsic utility beyond financial incentives.
- Strong Stablecoin Base: Effective use of stablecoins is crucial for functional DeFi economies.
- Major Asset Liquidity: Deep liquidity in major assets like BTC and ETH facilitates capital flow.
- DEX Liquidity Depth: Ample liquidity in AMM pools reduces slippage risks for large trades.
- Lending Market Infrastructure: Robust lending markets enable diverse financial strategies.
- Institutional Custody Integration: Integrating custody solutions is vital for attracting institutional investment.
- Bridge Infrastructure: Effective interoperability is essential for cross-chain value transfer.
- The Intangibles: Key factors like oracle integrations and experienced market makers enhance ecosystem viability.
Most incentive programs struggle to deliver lasting impact due to misaligned goals and fragmented capital. The key to successful ecosystems lies not in the size of incentives but in establishing a solid foundation with liquidity, access, and effective user flows. Sustainable growth in DeFi goes beyond short-term farming incentives.