From protocol to platform, how do DeFi projects avoid the "commodification trap"?

Original Title: DeFi's Next Evolution: How Protocols Become Platforms Original Author: DefiIgnas Original translation: zhouzhou, BlockBeats

Editor’s Note: This article takes the challenges faced by Ethereum and the innovations of Fluid v2 as an example. Fluid combines lending with AMM liquidity to create a platform that is suitable for both large users and supports developers. The v2 version of Fluid enhances capital efficiency by introducing features such as range orders, lending liquidity strategies, and dynamic fees, providing developers with the opportunity to build new products.

The following is the original content (for ease of reading and understanding, the original content has been reorganized):

The next significant leap for Decentralized Finance is the evolution of protocols into platforms.

Just like Apple's App Store, protocols are no longer single-use tools, but the foundation on which other applications are built.

Noticed a trend in DeFi: wallets are now using DEX aggregators in the background, rather than relying on front-end applications.

As the DeFi ecosystem becomes increasingly complex, the growing popularity of Vault strategies also indicates that people are seeking to obtain the highest returns across multiple DeFi protocols.

But there is also a trap: the protocol could become a commoditized infrastructure, while user-facing applications would reap most of the benefits.

For example:

• Uniswap Labs earns front-end fees, while LP exchange fees are on a downward trend, and $UNI holders receive no returns.

• Metamask charges a fee of 0.875% because it holds the users.

• Compound Finance is becoming the front end of the Morpho vault.

Many people view Ethereum merely as an infrastructure, challenged by L2 and Solana as they offer lower transaction fees.

Over time, the gas fees for ETH will be abstracted, allowing users to use Ethereum without holding any ETH.

This risk is part of the "Fat App Theory," but don't be quick to bury the "Fat Protocol Theory."

Ethereum is a development platform whose valuation has changed. Now its valuation is based on the fees it generates, rather than the potential of the platform and the role of ETH as a store of value.

With the close integration of Layer 2 solutions and L1, as well as the restoration of the ETH burning mechanism, the narrative around ETH may change rapidly.

Interestingly, Aave performs well as a user-facing application, especially in serving large holders, while also acting as a liquidity hub for Decentralized Finance.

Or Pumpdotfun, which has a grip on the end users, is now expanding vertically by developing its own DEX; whereas Raydium is doing the opposite by launching a token launch platform.

For example, the launch of Uniswap v4 comes with the "Hooks" feature, similar to "plugins" or "extensions."

These "Hooks" brought the App Store to the iPhone. Just as Apple no longer needs to develop iPhone apps themselves, developers can build applications on top of Uniswap.

The token launch platform @flaunchgg is a great example of utilizing the Hooks of Uniswap v4 and providing liquidity through Aave.

Uniswap v4's hooks are amazing because they allow developers to build applications on top of the protocol.

Although the growth is slow (to promote hooks, Uniswap launched a liquidity mining campaign), Messari expects the adoption of hook applications to accelerate.

I believe that protocols that successfully evolve from mere infrastructure to platforms will have significant premiums. This transformation helps avoid the commoditization trap that Ethereum has fallen into.

Another example is the recently released Fluid DEX v2: it allows developers to build for the protocol.

Fluid v2 transforms itself from a lending protocol with DEX functionality into an open platform that allows third-party developers to build for the protocol.

Even though DEX abstracts the end user, Fluid v1 DEX still challenges Uniswap with its advantages integrated by top DEX aggregators.

In version v2, Fluid combines lending with AMM liquidity to create a protocol that serves as both a front end for large traders and a developer platform.

You will receive:

• By default, range orders will earn profits (without idle liquidity).

• Lending provides liquidity strategy (Decentralized Finance first).

• Provides developers with Hooks + dynamic fees, perpetual contracts, and other features.

Fluid will launch a permissionless DEX and lending market, where developers can build new products on Fluid.

As @DeFi_Made_Here wrote, this is a fixed income market.

The key is the value flow back protocol: every hook, cross-collateralized position, or perpetual contract application built on Fluid shares fees with the ecosystem.

I believe that the capital efficiency of the v2 version of the DEX and Fluid will help avoid the commoditization trap: just like Aave, which is the front end for big players;

Just like Uniswap v4, it is a developer platform. By integrating lending and AMM logic at the protocol level and enhancing capital efficiency, it has become the best platform for strategies such as debt-driven LP.

The protocol does not need to choose between infrastructure and applications; with $FLUID, they can have both features simultaneously.

Disclaimer: I hold $FLUID tokens.