The Ethereum ecosystem rises again, with DeFi protocols linking to lead a new round of rise

The Ethereum ecosystem is undergoing a new wave of prosperity, closely linked with DeFi protocols. Protocols such as Aave, Pendle, and Ethena maximize the leverage effect through a circular lending model. Compared to the DeFi summer of 2020, the leverage growth curve represented by stablecoins like USDe is now more stable.

The current market may be entering a long-term rise cycle. The assessment of on-chain protocols mainly revolves around two aspects: first, involving a more diversified range of asset types, with the Federal Reserve potentially lowering interest rates, external capital liquidity is expected to further increase; second, exploring the limits of leverage multiples while paying attention to how to safely deleverage, including how individuals can exit safely and how a bull market may potentially end.

Six Core Protocols: The Synergy Between the Ecosystem and Tokens

Despite the wide variety of on-chain protocols and asset types, according to the Pareto principle, we only need to focus on a few key indicators, such as Total Value Locked (TVL), trading volume, and token prices. More specifically, we should focus on a few core protocols that are indispensable to the on-chain ecosystem, analyzing their interrelationships within the ecological network to balance individual importance, ecological connectivity, and the growth potential of emerging protocols.

Ethereum accounted for over 60% of the total locked value in DeFi in July, and Aave also represented over 60% within the Ethereum ecosystem. These two form the core of the DeFi space. Other protocols seeking to enter the mainstream must maintain close ties with these two giants.

With the rise of the circular loan model, the correlation between Ethereum, Aave, Pendle, and Ethena is becoming increasingly close. If Bitcoin is also taken into consideration, then WBTC, ETH, and USDT/USDC constitute the foundational assets of DeFi. However, while USDT/USDC and Lido have important asset properties, they are relatively weak in terms of ecosystem value.

Different protocols may have multiple values. For example, Bitcoin primarily reflects asset value, while Ethereum has both asset and ecosystem value. Based on the importance of asset and ecosystem value, we can score the leading protocols: the needed asset attribute scores 1 point, and the needed ecosystem value scores 1 point.

After analysis, Pendle, Aave, Ethena, Ethereum, HyperEVM, and Bitcoin have the closest connections among these six protocols. They can interact directly with each other, needing at most just one additional protocol or asset to establish a connection.

These six assets can be divided into three tiers based on their importance in the ecosystem:

1. Top Layer: Bitcoin and Ethereum
2. Middleware: Aave and HyperEVM
3. Base Layer: Pendle and Ethena

It is important to note that this hierarchy does not reflect the value of the assets, but rather indicates their importance ranking within the ecosystem.

In this relational network, the Ethereum ecosystem demonstrates the strongest synergy. For example, 1 dollar of Ethena can flow into the system through ETH hedging and create value between Pendle and Aave, while the Gas fees generated become a support for ETH's value.

Apart from Bitcoin relying on BTC for its value self-circulation, ETH is the closest to achieving a value closed loop. The Hyperliquid/HyperEVM combination is still under development, and whether it can achieve effective linkage between transactions, the ecosystem, and the $HYPE token still requires time for verification.

The Prospects and Challenges of DeFi Expansion

Aave plays a core role in the current round of DeFi development, providing leverage for the circular loan systems initiated by Pendle and Ethena. Aave is gradually becoming the infrastructure on the Ethereum chain, not only due to its high TVL but more importantly because of its comprehensive advantages in security and capital scale. For any public chain and ecosystem, the safest way to launch a lending model is to compliantly fork Aave.

However, Aave is not irreplaceable. Maple has expanded to HyperEVM, and new lending protocols like Fluid and Morpho are also collaborating with emerging assets like YBS. As a strong competitor in the Ethereum EVM ecosystem, HyperEVM may not always maintain its current collaborative stance.

From the perspective of proactivity, Bitcoin and HyperEVM represent two extremes. HyperEVM is expanding its influence in various ways, including attracting traditional trading types to the blockchain, bridging liquidity between different ecosystems, and supporting its own front-end agents.

Overall, major protocols are seeking their own paths for expansion:

• Pendle is committed to developing various types of fungible assets to expand the derivatives market.
• Ethena creates a third pole for stablecoins through the DeFi circular loan model and treasury strategy.
• Aave has become the de facto lending infrastructure, closely tied to Ethereum.
• Bitcoin and Ethereum represent the limits of the blockchain economic system, and their level of development determines the rise of Decentralized Finance.
• Hyperliquid/HyperEVM may not have as much TVL as Solana, but its growth prospects could be greater due to its close ties with existing DeFi giants.

Conclusion

This article focuses on the close connections between the six core protocols, reflecting their important positions in the current Decentralized Finance ecosystem. This high level of collaboration not only enhances the freedom and utilization of funds but also makes the entire ecosystem more prosperous.

However, this close connection also means shared risks. The trend of DeFi shifting from anchoring on ETH to anchoring on YBS (such as USDe) is worth noting. Compared to the high-value but volatile ETH, a DeFi system based on USDe can theoretically achieve a more stable leverage and deleveraging process, making the overall system's rise curve smoother.

In this highly competitive crypto world, emerging protocols must constantly innovate and establish connections with existing mainstream protocols to create a strong protocol network to secure a place in this rapidly evolving ecosystem.