How does Fluid redefine the rules of the DeFi game?
Original title: (Why Fluid will kill Aave & Curve (or Uniswap))
Written by: Foxi_xyz, Crypto Kol
Compiled by: zhouzhou, BlockBeats
Editor's Note: This article discusses how Fluid is disrupting the traditional DeFi model by combining lending and trading. Its dynamic debt mechanism not only allows borrowing to earn trading fees as liquidity but also significantly enhances capital utilization, creating $39 in liquidity for every $1 in TVL. It also analyzes the potential of INST, suggesting that with strong growth and an upcoming DEX, the price could rise above $8, making it a project worth watching.
The following is the original content (for readability, the original content has been reorganized):
Fluid's lending protocol has already sparked a surge: with a monthly increase of up to 3 times, TVL has reached $800 million. However, lending is not a new concept in DeFi. The real killer feature lies in the decentralized exchange that Fluid is about to launch. Let's take a look at why this new DEX design might disrupt the market, whether the current valuation of INST is worth buying, and how much potential it has for the future.
What is Fluid?
Fluid is a money market protocol launched by the Instadapp team, and holding INST is equivalent to directly participating in Fluid's growth. It is similar to other money market protocols (like Aave and Kamino) but has improvements in the liquidation mechanism. While lending itself is hard to innovate disruptively, Fluid demonstrates new possibilities in the lending market by combining lending and DEX, which is key to its success.
Fluid may become the super DeFi of this cycle
Beyond traditional money markets
To understand Fluid's potential, one must first recognize the limitations of the current DeFi liquidity ecosystem: traditional money markets and DEXs operate independently, significantly limiting capital efficiency. These assets serve only one purpose - to generate lending income. Similarly, the liquidity provided to DEXs like Uniswap can only earn trading fees.
Traditional loan model
This fragmentation has led to high costs for users:
Low capital utilization
Liquidity is scattered across different protocols
Fluid DEX: The perfect combination of lending and trading
Fluid DEX redefines how DEXs operate; unlike traditional DEXs that focus on trading, Fluid DEX integrates the functions of a trading platform and a money market, potentially becoming the most capital-efficient DEX design in DeFi.
Core innovation: Smart collateral and smart debt
Smart collateral (standard feature)
Users can use liquidity pairs (like ETH/wstETH or ETH/WBTC) as collateral. Liquidity provider (LP) tokens can simultaneously serve as collateral for lending and earn trading fees from the DEX. This has already been reflected in many new lending protocols.
Smart debt (real innovation)
This is the most revolutionary design of Fluid DEX. Traditional DeFi views debt purely as a liability, where users only need to pay interest after borrowing. Fluid disrupts this model by allowing debt positions to provide liquidity and earn trading fees.
The key innovation lies in the automatic rebalancing of 'smart debt', becoming liquidity in DEX
Dynamic debt mechanism with automatic rebalancing
Unlike fixed assets in traditional lending, users borrow dynamic debt positions in Fluid. When traders want to swap (like USDC for USDT), the system does not need to use traditional liquidity pools but automatically adjusts the borrower's debt structure (reducing USDC debt, increasing USDT debt). This debt rebalancing mechanism acts as a liquidity source for the DEX while bringing trading fee income to borrowers.
Example of automatic rebalancing:
Borrowing 1000 USDC and 1000 USDT, after depositing into Fluid DEX, someone exchanges 500 USDC for USDT:
Your USDC debt decreases to 500
Your USDT debt increases to 1500
You earn fee income from this transaction
Total debt remains unchanged while generating income through trading activities.
Massive capital efficiency
The combination of smart collateral and smart debt achieves unprecedented capital efficiency. Through innovative design, Fluid can create up to $39 in effective liquidity for every $1 of TVL. This is not theoretical data but is achieved through the following carefully designed systems:
High loan-to-value ratio (LTV), with some assets reaching up to 95%, thanks to advanced liquidation mechanisms.
Simultaneously utilizing collateral and debt as sources of liquidity.
Automated risk management system that adjusts positions based on market conditions.
In a bull market, the market pursues high leverage and high capital efficiency, which may further increase Fluid's TVL and fee income.
Valuation: Is it worth buying INST now?
Source: Coingecko, Token Terminal, Defillama, other sources
TVL/FDV multiple still has room for growth
Fluid's FDV/TVL ratio is 0.78x, which still has significant room for improvement compared to Aave's 0.19x. More importantly, Fluid's TVL has grown to $516 million without large-scale token incentives, demonstrating its strong organic growth capability.
Strong fee generation ability
Fluid generates approximately $15.95 million annually through its lending protocol, with a fee/FDV ratio of 3.98%, which is competitive compared to emerging lending protocols like Morpho and Euler. With the upcoming DEX, its revenue is expected to increase further:
Standard trading fees
Additional income from smart debt
Overall, it is expected that the price of INST can reach at least $8.
Looking ahead: DEX will be Fluid's killer application
Fluid does not rely on token incentives to drive growth but achieves an organic growth cycle through efficient capital utilization:
Efficient capital utilization -> Reducing borrowing costs -> Attracting more TVL -> Increasing DEX liquidity -> More trading fees -> Further reducing borrowing costs
While Fluid's success in the lending field has been impressive, its upcoming DEX may be the real innovative point. By redefining the relationship between lending and trading, Fluid is not only improving existing tools but also creating new possibilities for capital efficiency.
