The Holy Grail of DeFi in my heart

Author: timzz

In the past, the dominance of the dollar relied on the U.S. military and U.S. propaganda to lead global finance.

Today, blockchain is the new era's U.S. military and U.S. propaganda.

The large-scale on-chain integration of U.S. stocks and the future issuance of merged assets (a new type of asset combining traditional assets and crypto assets) have ushered in a new development for DeFi. After the issuance of emerging assets, the first batch of protocols to benefit are trading-related. With the fee switch of Uniswap activated, Uniswap's fully diluted valuation has tripled over the past few months. This article mainly discusses where the trend will go after trading and the DeFi Holy Grail in my mind.

Why DeFi is Needed

Before discussing DeFi, let's first talk about why DeFi is needed.

In the past, maintaining the dollar's hegemony relied on the U.S. military and U.S. propaganda. The dollar's share of global foreign exchange reserves is shown in the chart below. Although the share has dropped from 65% to 58% over the past decade, it remains the dominant currency among international reserve currencies. In the last decade, with the issuance of U.S. debt reaching $40 trillion, the fiscal deficit for 2025 is projected to be $1.8 trillion, and the fiscal deficit for 2026 is also expected to exceed $2 trillion. The proportion of the fiscal deficit to GDP is now far greater than the GDP growth rate (~5.8% vs ~1.9-2.2%). Some economies have begun to derisk from the dollar and U.S. debt. For the dollar, blockchain may be another lifeline; the U.S. can use blockchain technology to distribute U.S. debt and dollar-related assets, while the issuance, trading, lending, and derivatives of stablecoins around DeFi are the main effective substances in this lifeline. (Detailed discussion here)

Foreign exchange reserves

The development of things is often not linear. Back in 2017, there was hope that Security Token Offerings (STOs) might bring a new narrative and funding to the digital currency industry. It wasn't until 2026, with the rise of AI stocks and the tokenization of stocks by Binance and Robinhood, that this narrative truly began. In recent weeks, both the SEC and CFTC have been issuing corresponding innovation exemption bills. Regarding the Clarity Act, my thought is "better late than never," because blockchain is the new era's U.S. military and U.S. propaganda. The question to consider here is merely who will manufacture the arms, rather than whether to manufacture arms.

The Five Core Business Models of DeFi

Having rambled on, let's get to the point—my DeFi Holy Grail.

The five core business models of DeFi are: stablecoin/asset issuance, lending, asset management/yield aggregation, trading, and derivatives.

According to the revenue rankings of DeFillama's top 15 protocols, there are 5 stablecoin issuers, accounting for 79.8% of the 30-day revenue of the top 15 protocols; next is DEXs, accounting for 11.8%, as trading often captures the first wave of growth dividends from asset issuance; derivatives are dominated by Hyperliquid, accounting for 6.6%; followed by lending, accounting for 1.8%. The small proportion here is mainly because the profit source for protocols comes from the interest rate spread on loans, with most of the interest from borrowers going to lenders, and protocols only capturing a portion as profit. Since this is the beginning of a bull market, asset management and yield aggregator types have not yet entered the top 15, but it is expected that protocols similar to money market funds in traditional banks will enter the top 15 in the future.

Revenue by protocol top 15 - Defillama

The DeFi Holy Grail is the Right to Mint Currency

Stablecoin/asset issuance generates revenue directly from reserve assets or excess collateralized loan interest. After scaling, the marginal cost is extremely low and has first-mover advantages.

Currently, based on issuance volume, the top three are Tether, Circle, and Sky.

Among them, Circle and Tether's stablecoin issuance model uses short-term U.S. Treasury bonds and U.S. dollars as collateral, then issues corresponding stablecoins. The protocol's profits mainly come from SOFR, which is quite substantial in a high-interest environment. However, there could also be situations similar to those around 2021 when SOFR and short-term Treasury yields were 0, significantly damaging the protocol's profits.

Sky's stablecoin issuance mechanism mainly comes from over-collateralization, following a DeFi-native model. In recent years, due to the rise in SOFR rates, Sky has increased the proportion of real-world assets (RWA) in its collateral structure, but compared to Tether and Circle, it is more flexible, able to shift between RWA and DeFi based on market conditions. Additionally, the subDAO governance model also makes the protocol more resilient.

Stablecoins face the impossible triangle: decentralization, capital efficiency, and price stability. Tether, Circle, and Sky each have advantages in the impossible triangle. However, only Sky operates in a relatively decentralized model rather than as a single entity.

"Central Banks" Issue Assets, "Commercial Banks" Distribute Assets

The Holy Grail of DeFi is the right to mint currency, and the distribution of assets after minting is also a top priority for major "central banks." This distribution includes the liquidity of stablecoins, trading, lending, payments, etc.

The distribution of USDT has a first-mover advantage, with trading on major centralized exchanges and payments in non-North American regions serving as barriers for USDT.

The distribution of USDC includes derivatives trading on Coinbase and Hyperliquid, but the question here is whether it can continue to be maintained without implicit subsidies, and the future competitive barriers for Circle after many "USDC" issuances.

The distribution of USDS/DAI comes from deeply integrating various DeFi pipelines and relying on subDAOs like Spark for expansion. The subDAO model allows Sky to retain the functions of a central bank while mobilizing other independent teams to serve the main line of expanding USDS/DAI.

Spark relies on the "commercial bank" of the "central bank," possessing a relatively complete capital distribution model (Spark liquidity layer + Sparklend lending), and uses USDS as an intermediary layer to establish a foreign exchange layer for stablecoins, providing liquidity exchange for emerging stablecoins like RLUSD and pyUSD.

DeFi is Just Beginning

DeFi is just beginning; the next four years will be a period of deep integration between DeFi and U.S. finance. The U.S. will distribute U.S. assets through blockchain, and through the profits of U.S. stocks, part of the profits will be converted into BTC and gold assets, creating a cycle of mutual growth.

DeFi "central banks" and the commercial banks relying on them will experience a significant development period.