Tren Finance Thesis for 2024

It is now 2024, nearly 5 years since protocols like Compound were released, and the DeFi sector experienced a boom in activity. During the DeFi Summer, liquidity mining and staking with triple-digit yields became the norm. While yields have shifted away from inflationary “ponzinomics,” I believe that 2024 will be the year when DeFi experiences a revival. In this article, I will share my thesis on why I believe this and how my team at Tren.Finance intends to contribute to the revival of DeFi with a next-generation collateralized debt position (CDP) protocol.

I will start off by discussing the narratives that I believe will contribute to the growth of DeFi in 2024. Bitcoin, followed by real-world assets, Uniswap v4, and liquid restaking.

It is well known that the volatility of Bitcoin has a significant impact on DeFi. Fluctuations in Bitcoin’s value can affect collateralization ratios, potentially leading to liquidations and loss of assets. This is because the value of the collateral used to secure loans in DeFi platforms is directly linked to the value of the underlying asset, such as Bitcoin.

Furthermore, the majority of large-cap tokens in DeFi are still strongly correlated to the price movements of Bitcoin. As a result, if the price of Bitcoin continues to rise, there is a high likelihood that these other assets will also increase in value. This, in turn, will lead to an increase in Total Value Locked (TVL) across all DeFi protocols, attracting more opportunities to the sector.

Next, we have Real World Assets (RWAs), which is a narrative that has not yet kicked off but is closely tied to the institutional adoption of crypto, led by the approval of the bitcoin ETF. The protocols that stand to benefit the most from the introduction of RWAs are DeFi protocols, such as money markets and stablecoins. The bullish case for RWA tokens is not that they will experience a 100x increase like a new shiny AI token, but rather that they will enable an influx of liquidity from traditional markets, such as the $100 trillion market share of equities, into decentralized finance. This influx of liquidity will contribute to a higher TVL in protocols that utilize these tokens and increased activity in DeFi. Additionally, the introduction of RWAs may allow tokens and protocols backed by RWAs to decrease their correlation with bitcoin.

I see Uniswap V4 as a catalyst for revitalizing DeFi. Uniswap has not undergone any major updates for over two years. While V3 introduced concentrated liquidity, which improved liquidity management for LPs, it also made the LP process more complex and impacted profits due to Maximal Extractable Value (MEV) in the Uniswap ecosystem. Uniswap V4 is the latest upgrade, focusing on flexibility. Instead of introducing a new liquidity management function, the team decided to let the community determine the future functionality of the AMM through programmable hooks. The standout feature of Uniswap V4 is the plan to internalize MEV profits, actively benefiting LPs and increasing demand for passive LP positions.

Finally, I have closely examined restaking within the EigenLayer protocol. Restaking allows users who have staked their ETH to actively contribute to extending cryptoeconomic security to various applications on the network.

In traditional staking, token holders can lock or “stake” their tokens to participate in the network’s consensus mechanism and receive rewards, typically in the form of additional tokens. However, this method imposes a significant constraint on users. Once the tokens are staked, they are locked for a certain period and cannot be traded or used in other activities. To address this limitation and leverage Ethereum’s permissionless innovation ecosystem, liquid restaking tokens (LSTs) are being created.

When you stake your tokens through a platform offering liquid staking, you receive another representative token in return. This token is a “liquid” version of your staked asset and represents your staked investment as well as the corresponding staking rewards. As a result, these tokens can be freely traded, used in decentralized finance (DeFi) dApps, or used as collateral in other blockchain-based activities.

Tren Finance is a CDP protocol designed to provide liquidity for various types of assets. Our team comprises of core contributors from various successful DeFi projects, boasting a combined TVL surpassing $1 billion. Drawing insights from our experiences at Venom, MakerDAO, AJNA, Parity Technologies, Gamma, Parallel Finance, Binance, and more, we bring a wealth of knowledge to the table.

The basic idea behind CDP and lending protocols is to use your assets as collateral to obtain a loan that is overcollateralized. With this type of loan, you always lock in more funds in the smart contract than you borrow, ensuring that there is no bad debt.

While this concept is not new and protocols like AAVE and Compound have been implementing it since the DeFi summer, The difference with Tren Finance is that we focus on unlocking liquidity and leverage for tokens that are typically illiquid or niche. Instead of offering a few high demand assets like wBTC and ETH, we take an unconventional approach by building a protocol capable of securely offering a wide range of assets that would not typically be eligible as collateral in other protocols . The vision is that DeFi users will be able to use nearly every token they own in their non-custodial wallet as collateral for a loan or leverage position.

I will explain the benefits of being able to do this in relation to the tokens discussed previously. I will start with RWAs, then move on to LP tokens, and finally cover Liquid Restaking Tokens.

Projects are making progress by providing real-world assets, such as tokenized equities or fractional real estate. With effective execution, this allows holders of these on-chain assets to benefit from dividends for equities and rental payments for fractional real estate. But why stop there? The Tren Finance protocol enables users to deposit these tokens as collateral, allowing them to borrow trenUSD, an algorithmic stablecoin. This unlocks liquidity in their investments and provides instant access to a credit line that can be used to further invest in new opportunities within DeFi. Users can still benefit from holding their appreciating assets locked in the smart contract while also benefiting from the use of the RWA yield-bearing stablecoin.

The release of uni v4 will increase yield for passive liquidity providers (LPs) through internalized MEV profit, auto-compounding LP fees, and on-chain dollar-cost averaging with TWAMM implementations. However, why should it stop there? The Tren Finance protocol allows LP tokens to be used as collateral, similar to RWAs, enabling LPs to generate yield from providing liquidity while still accessing instant cash flow from trenUSD. This cash flow can be leveraged for yield farming activities, bringing back the yields LPs enjoyed during DeFi summer.

As mentioned before, the introduction of liquid restaking enables users to generate LRT tokens, serving as representations of ETH staked across diverse networks. Much like LP tokens, these tokens are tradable and come with inherent yields. However, the possibilities don’t end there. Imagine having your ETH staked across various networks, earning staking yields, and simultaneously enjoying the option to borrow stablecoins. To take it a step further, get up to 10x leverage on your LRTs through the Tren Finance Leverage feature.

We are excited to unveil a multitude of use cases for Tren Finance users in the upcoming months. Whether you’re interested in exploring leveraged restaking and farming opportunities, seeking an interest-bearing stablecoin backed by real-world assets, or considering using your meme tokens as collateral for a loan, Tren Finance is committed to making it all possible.

Our team is made up of core contributors from various successful DeFi projects, boasting a combined TVL surpassing $1 billion. Drawing insights from our experiences at Venom, Parity Technologies, Gamma, Parallel Finance, Casper Labs, and more, we bring a wealth of knowledge to the table.

In the coming months, our focus is on refining the product and educating the industry. Early 2024 will witness the launch of the first version of our next-generation CDP protocol to the public.

We invite you to join us on this exciting journey, starting with our community page on X (twitter) and our Discord community.

Tren Finance is a CDP protocol designed to provide liquidity for various types of assets. Our team comprises of core contributors from various successful DeFi projects, boasting a combined TVL surpassing $1 billion. Drawing insights from our experiences at Venom, MakerDAO, Ajna, Parity Technologies, Parallel Finance, Casper Labs, and more, we bring a wealth of knowledge to the table.

We are excited to unveil numerous use cases for users interested in exploring leveraged staking, restaking and farming opportunities.

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