Classifying 2022 DeFi protocols
DeFi in 2022 was a lot about liquidity provisioning and balance sheet monetization. Everybody was looking for simple and safe yields without the risk of getting their hands burnt. The year has brought the dawn of certain type of protocols like:
- Automation protocols for auto-compounding funds
- Enhancers for looping funds
- Extender protocols
Automation protocols re-balance liquidity positions across AMMs and Layer 1s, recycle rewards, and provide “auto-compounding” services. Convex Finance is one the leading examples - they “recycle” $CRV and Curve LP tokens for boosted rewards, trading fees, and governance tokens.
Enhancers are protocols that do not introduce new operating models for DeFi, but rather recycle the outputs from existing protocols to optimize returns for the end user. A good example of this is Abracadabra.money, which is similar to MakerDAO but with the important difference that it creates collateralized debt position from yield-bearing assets (and has much looser risk controls).
Extenders are protocols that stack various underlying DeFi protocols. Alchemix is a good example. It’s vaults function similarly to MakerDAO’s, but the protocol also rehypothecates its collateral assets and deposits them into yield aggregators like Yearn, creating yield generating synthetic tokens which look like “self-repaying loans.” The rehypothecation creates risk, as the protocol absorbs the risks of the lower-level protocols it’s built on. Still, self-repaying loans!
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