Decentralised finance (DeFi) was born on Ethereum, and its pioneers have become industry benchmarks. These include MakerDAO, which has been issuing the stablecoin DAI since December 2017; Uniswap, the decentralised exchange platform deployed in November 2018; and Aave, the lending app active since January 2020.
These protocols have subsequently been replicated many times over on various blockchains, either by simply inspiring how they work or by forking (copying) their code directly.
However, the growth of DeFi has eventually slowed or even stagnated. Total deposited value (TVL) on these protocols peaked in late 2021, coinciding with the crypto market peak of the previous cycle. Since then, the TVL of these protocols has failed to regain its historical levels or set new records.
The "DeFi OGs" remain largely the leaders in their respective sectors and continue to innovate in an attempt to regain and exceed their historical liquidity levels. We therefore propose to analyse their respective future developments, as well as the common trends and divergences that are emerging.
Uniswap V4 Uniswap allows anyone to create, exchange and provide liquidity on token pools in a decentralised manner.
Each new version of the protocol is immutable and does not replace the previous one, but allows new types of pools to be created. Thus, pools V2 (passive liquidity management, suitable for the general public) and V3 (active liquidity management, aimed at sophisticated players) coexist with distinct value propositions.
Uniswap V4, announced in mid-2023 and scheduled for the end of 2024, probably represents the most ambitious update of the protocol to date.
The major innovation of V4 lies in "hooks" - smart contracts attached to a pool that allow its organisation to be modified in depth and functionalities to be added, such as:
dynamic fees to keep a pool competitive capturing MEV (Maximum Extractable Value) and redistributing it to liquidity providers and/or traders creating pools accessible only to users who have performed KYC, allowing pools to comply with the various regulations The aim is to establish a basic architecture common to all pools, allowing everyone to experiment freely rather than forking the protocol. The ambition is to create the foundation on which all DeFi trading pools would be built.
Other innovations aim to reduce transaction costs and improve the experience of users and developers, in particular through the introduction of a single smart contract grouping together all pools and the possibility of carrying out several operations within pools in a single transaction.
Aave V4 Aave allows anyone to lend and borrow cryptocurrencies in a decentralised way.
Aave V4, scheduled for 2025, brings a number of innovations. One of the main ones is the introduction of a unified liquidity layer, aimed at connecting transactions between different instances of Aave - for example, Aave V2 and V3 markets, as well as markets between different blockchains. This innovation aims to improve user experience and capital efficiency.
Interest rate management will be automated using the Chainlink oracle, eliminating the systematic need for governance votes.
GHO, Aave's decentralised stablecoin, will take a more central role in the protocol. Users will, for example, be able to receive their interest in GHO. In addition, the protocol will introduce "soft-liquidations", inspired by Curve and its crvUSD.
Alongside its V4, Aave has announced the redistribution of its profits and the modification of the "safety module". This module is designed to protect lenders against bad debt resulting from poorly liquidated loans. The aim is to use part of the protocol's profits to set up a system for buying back and redistributing AAVE tokens to the protocol's stakers.
Maker / Sky MakerDAO recently rebranded itself as Sky as part of its "Endgame" plan.
Sky's aim is to create an ecosystem of applications called "Stars", reinforcing the usefulness of USDS (formerly DAI) and SKY (formerly MKR). The SKY becomes the governance token for all Stars.
In contrast to the DAI, the USDS can be frozen by the protocol. This controversial change aims to align with potential regulatory developments, demonstrating an openness to working with government authorities.
Each year, a fixed amount of SKY will be issued and distributed continuously to USDS holders. In addition, users depositing USDS in Stars will receive governance tokens specific to these applications. However, these rewards will be inaccessible in certain countries, including the US and UK, as well as to VPN users.
Spark, a fork of Aave V3, is the first Star in the SKY ecosystem and will use SPK as its governance token.
Sky plans to reintroduce liquidity mining to boost USDS returns. It remains to be seen whether Stars will be truly innovative and whether their governance tokens will have any real utility.
Sky's focus on returns and regulatory compliance is seen as a way to increase USDS adoption beyond the limitations faced by DAI.
For more details, read our analysis of Sky.
Maximum Extractable Value (MEV) management takes hold among DeFi protocols MEV is the optimisation of the arrangement of transactions to extract the greatest value. It can take several forms, including:
The sandwich attack: a bot detects your buy order, executes its own before yours, then sells immediately after your purchase. Loss Versus Rebalance (LVR): a form of arbitrage occurring when an MA posts an out-of-date price (due to the discount delay associated with the speed of block production) relative to another, more responsive trading venue (often a centralised exchange), thereby extracting value from liquidity providers. Oracle Extractable Value (OEV): this exploits the price discount delay provided by oracles, allowing bots to liquidate users' loans in the way that is least advantageous to users (more information here) OEV represents a net loss for applications and their users, to the benefit of arbitrage bots, block creators and blockchain validators. Applications are therefore seeking to recover this value that is escaping them.
Uniswap V4 is working to internalise SRM through the development of hooks on its pools. Uniswap Labs has also invested in Sorella , which aims to enable applications to capture most of the SRM they generate.
Aave, meanwhile, is exploring SRM capture possibilities, but is moving cautiously (see governance discussion )
Wallets, protocols, layers: towards vertical integration? Applications are looking to play an increasingly important role in capturing value.
As analyst Mason Nystrom explains, proximity to the user allows value to be captured, particularly through the monetisation of their order flow. Wallets and app interfaces are therefore competing to become the point of origin for transactions.
With this in mind, Uniswap Labs has developed its own wallet with a focus on user experience. It offers mobile compatibility and is presented as a sidebar, ensuring constant proximity to users.
This vertical integration also extends to infrastructure, with applications seeking to own the platforms on which they operate. For example, Aave and Sky are looking to launch their own channels in the long term.
While owning your own layer 1 may not seem relevant for security and interoperability reasons, more and more established applications could find value in launching their own layer 2.
Partners or competitors? One of the major advantages of blockchains is that they allow interconnected applications to be created without the need for prior authorisation. This feature allows each application to specialise in its own field while integrating components developed by others, giving rise to the theory of "DeFi Legos".
However, it is not uncommon for the development of certain projects to encroach on the territory of other players. The relationship between Aave and Sky is a perfect illustration of this.
Aave has contributed significantly to the development of DAI by offering additional incentives to its lenders and borrowers. In 2023, Sky launched Spark to gain greater control over DAI's borrowing markets. In the same year, Aave introduced its own decentralised stablecoin: GHO. Recently, the "Sky Aave Force" initiative was announced, aimed at stimulating the development of USDS on Aave.
The interactions between the protocols are complex: each seeks to increase its revenues and control the use of its tokens, while also being able to form mutually beneficial partnerships.
As for Uniswap, its V4 openly encourages other protocols to develop hooks on its pools.
Business models and usefulness of tokens The UNI token currently remains a simple governance token. A proposal to activate a trading fee capture was rejected by a governance vote. Several sources point the finger at a16z, a venture capital fund that has invested in Uniswap, as being behind the rejection - presumably for fear that UNI would be considered a financial security.
In contrast, Uniswap Labs levies 0.25% fees on the majority of trades made via its interface and wallet. This strategy has enabled the company to generate $60 million in revenue over the past 12 months. It should be noted that the venture capital funds that have invested in Uniswap also own shares in Uniswap Labs, in addition to the UNI token.
At Aave, the benefits of the protocol are managed by the DAO. Part of these profits will be used to buy back AAVE and redistribute it to the stakers, allowing the token to capture the value generated by the protocol.
As for Sky, the mechanism for sharing the value between the Stars, their governance tokens and the SKY has yet to be clearly defined.
Conclusion The DeFi OGs remain undisputed leaders in their field. This dominant position is based not only on the quality of their applications, but also on the network effect generated by the liquidity they have been able to attract, as well as their solidly established brand image.
Reputation and notoriety are crucial assets for any player in the sector, all the more so in DeFi where piracy can lead to the total and irreversible loss of users' funds.
These applications are therefore striving to consolidate their position while developing their activities. They aim to adapt to potential regulatory changes in order to accommodate the general public and institutional players in a world where value transfers are increasingly carried out "on-chain".
Uniswap aspires for its pools to become the foundation for all MAs, while Aave seeks to establish itself as the benchmark liquidity hub for other players.
Sky's current evolution, meanwhile, seems less defined, and the value proposition of its emerging ecosystem will still have to prove itself.
All these players are facing challenges in their respective sectors. They must therefore continue their innovation efforts while preserving their brand to maintain their leadership position. The stakes are high: otherwise, they risk losing market share, or even gradually disappearing from the landscape.
